All that glitters is not gold: the returns of educational credentials at different stages of industrial and organizational evolution

Abstract

Abstract A long stream of research has shown that the educational prestige of organizational members has a largely positive effect on organizational outcomes. We integrate the literatures on educational credentials, signaling theory, and industrial evolution to show that the benefits of educational prestige for firm survival may vary over different stages of industry development. When customers cannot evaluate the quality of a firm’s offerings directly, educational prestige signals that the firm can produce high-quality outputs. We predict that the signaling benefits of educational prestige will be highest during industry inception when evaluation uncertainty is highest. These benefits will diminish during the subsequent period of legitimation with decreasing evaluation uncertainty, but may increase again during the late-stage competition with increasing evaluation uncertainty. We extend this logic to new firms and firms with a new class of offerings. We find empirical support for our predictions from historical accounts and event-history analyses of all law firms in the Silicon Valley corporate legal market, 1928–1998.