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Too Good to Be True? The Unintended Signaling Effects of Educational Prestige on External Expectations of Team Performance

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  • Stephen J. Sauer

    (School of Business, Clarkson University, Potsdam, New York 13699)

  • Melissa C. Thomas-Hunt

    (Darden School of Business, University of Virginia, Charlottesville, Virginia 22906)

  • Patrick A. Morris

    (The May Group Family Fund, Ltd., Mutende, Somerset-Sandys, Bermuda MA05)

Abstract

In this paper we report the results of two experimental studies designed to test how demographic characteristics affect outsiders' assessments of a firm's top managers. We draw on theories of evaluation and status characteristics to examine the interactive effects of managers' racial characteristics and educational prestige on external perceptions. In the first study, we find that top executives' educational background and race affected analysts' valuation of a firm's stock. Outside analysts made the highest stock price projections for firms led by white executives who had highly prestigious educational backgrounds but made the lowest valuations for firms led by African Americans with the same prestigious education. We posit that the moderating effect of executives' racial characteristics stems from outsiders' assumptions that African American managers received preferential treatment in the admissions process for high prestige universities. In the second study, we find that when we explicitly removed the possibility of preferential selection, analysts gave the same stock valuation to firms led by white and African American executives with high educational prestige. We discuss the implications of these findings for theory and management.

Suggested Citation

  • Stephen J. Sauer & Melissa C. Thomas-Hunt & Patrick A. Morris, 2010. "Too Good to Be True? The Unintended Signaling Effects of Educational Prestige on External Expectations of Team Performance," Organization Science, INFORMS, vol. 21(5), pages 1108-1120, October.
    • Handle: RePEc:inm:ororsc:v:21:y:2010:i:5:p:1108-1120
    DOI: 10.1287/orsc.1090.0523
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    References listed on IDEAS

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    Cited by:

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    2. Donald D. Bergh & Brian L. Connelly & David J. Ketchen Jr & Lu M. Shannon, 2014. "Signalling Theory and Equilibrium in Strategic Management Research: An Assessment and a Research Agenda," Journal of Management Studies, Wiley Blackwell, vol. 51(8), pages 1334-1360, December.
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