Experiments Find Bias in Way Analysts View Firms Led by Black Graduates of Prestigious Universities, Says INFORMS Journal Study

HANOVER, MD, October 19, 2010 – Analysts examining a firm and the qualifications of its top management team discount the educational background of African American managers who graduated from prestigious universities while accepting the qualifications of white managers with the same college credentials, according to two experiments reported in the current issue of Organization Science, a journal of the Institute for Operations Research and the Management Sciences (INFORMS®).

“We found that possessing high educational prestige was less beneficial for firms led by African Americans than for firms with white leaders,” write the authors. In fact, the effect of having a highly prestigious education was significantly negative for teams that were led by African American executives. “Even though participants had plenty of information about the firm’s financial performance and the management team's accomplishments on which to base their assessments, the interactive effects of race and educational prestige remain. We can only surmise that this is due to assumptions of affirmative action through race-based preferential selection of African Americans into prestigious institutions.”

Too Good to Be True? The Unintended Signaling Effects of Educational Prestige on External Expectations of Team Performance is by Stephen J. Sauer of the Clarkson University School of Business, Melissa C. Thomas-Hunt of the Darden School at the University of Virginia, and Patrick A. Morris of the May Group Family Fund. The study appears in the current issue of Organization Science.

The authors believe that the 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 first experiment, the authors 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.

In the second experiment, the authors find that when they explicitly removed the possibility of preferential selection in the admissions process, analysts gave the same stock valuation to firms led by white and African American executives with high educational prestige.

The experiments were conducted with participants from a major business school. In the first experiment, 101 current and former MBA students took part. Each played the role of a financial analyst for a venture capital firm. The instructions asked them to review information and assign a current value to the stock of a privately held company. Participants were randomly assigned to one of four conditions that varied in the top executives’ race and the prestige of their alma maters.

In the second experiment, 61 MBA students from the same university conducted the same stock valuation. Before conducting the valuation, participants were randomly assigned to one of four conditions that varied in the use of preferential selection practices in the admissions process of the top managers’ alma maters and their race. Results showed that for African American executives, stock valuations were significantly lower when the executives’ alma maters did not explicitly refute the use of preferential treatment.

“Because participants had read at length about the company’s historical performance, current status, and future prospects, and they had analyzed a compendium of financial numbers, one would not expect that four small black and white photos alongside four short bios on the very last page of the pitch book would have had an effect on our analysts’ assessments, yet clearly they did,” write the authors.

Participants in the study include a representative sample of the larger population of professional analysts, maintain the authors. The majority of participants were MBA students, but a number in the first study were MBA alumni. In addition, two-thirds of participants in Study 1 reported that their work experience was in finance-oriented occupations, and at least 20% specifically listed their most recent work title as “auditor,” “CFA,” or another kind of “analyst.”

“Our findings underscore the work of other scholars who have found that ambiguity about the cause of superior performance of those associated with affirmative action diminishes perceptions of their competence,” the authors conclude.


The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 10,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, financial engineering, and telecommunications. INFORMS serves the scientific and professional needs of operations research analysts, experts in analytics, consultants, scientists, students, educators, and managers, as well as their institutions, by publishing a variety of journals that describe the latest research in operations research. INFORMS Online (IOL) is at www.informs.org. Further information about operations research can be found at www.scienceofbetter.org.

INFORMS journals are strongly cited in numerous industry sources. BusinessWeek has added a fourth INFORMS journal to its list of journals used to determine the world's best business schools making INFORMS the scientific association with the largest number of scholarly journals on the prestigious list. The Financial Times includes four INFORMS journals in its list of academic journals used to evaluate and rank MBA programs. The ERA 2010 journal list available on the Australian Research Council (ARC) website gave 8 of the 12 INFORMS journals A rankings. The research influence and impact of INFORMS journals is measured by Thomson Reuters and is made available in their Journal Citation Reports. Several of our journals are ranked in the top 10 percent of their subject categories.



Jeff Cohen
Director of Public Affairs and Marketing