Returns to MBA quality: Pecuniary and non-pecuniary returns to peers, faculty, and institution quality

Abstract

A large literature has focused on estimating the returns to schooling and has typically done so by incorporating institutional heterogeneity in quality along merely one dimension (such as average SAT scores). Using longitudinal survey data of registrants for the GMAT exam and school level information from other sources, we create, in the context of graduate management education, multiple indices of school quality, and estimate the effect of these quality measures on multiple indicators of career success. In particular, we create quality measures of MBA programs based on: (1) institutional and curricular factors, (2) characteristics of the student body, and (3) characteristics of the faculty. We create aggregate quality indices by combining individual proxies using factor analysis. We also extend the literature by considering the effects of quality on both earnings and non-monetary outcomes, namely attainment of managerial goals relative to initial individual expectations, self-assessed skill gains, and various measures of job satisfaction. We include several unique individual control variables, and further control for unobserved heterogeneity through the use of instrumental variables and individual fixed effects. Results indicate that the quality of peers and schools may matter most for earnings. When individual fixed effects are included, estimates of quality premiums diminish somewhat, though the estimated premium associated with school quality increases, emphasizing the importance of controlling for selection into programs of varying quality. School quality is also an important predictor of several non-pecuniary outcomes. © 2013 Elsevier B.V.

Publication Title

Labour Economics

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