Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji joeb.82.6.357-362

Journal of Education for Business

ISSN: 0883-2323 (Print) 1940-3356 (Online) Journal homepage: http://www.tandfonline.com/loi/vjeb20

Value-Added Adjustment In Undergraduate
Business School Ranking
David W. Kreutzer & William C. Wood
To cite this article: David W. Kreutzer & William C. Wood (2007) Value-Added Adjustment In
Undergraduate Business School Ranking, Journal of Education for Business, 82:6, 357-362, DOI:
10.3200/JOEB.82.6.357-362
To link to this article: http://dx.doi.org/10.3200/JOEB.82.6.357-362

Published online: 07 Aug 2010.

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Value-Added฀Adjustment฀In฀Undergraduate฀
Business฀School฀Ranking
DAVID฀W.฀KREUTZER
WILLIAM฀C.฀WOOD
JAMES฀MADISON฀UNIVERSITY
HARRISONBURG,฀VIRGINIA

ABSTRACT. In฀ 2006,฀ Business฀ Week฀
issued฀a฀highly฀publicized฀ranking฀of฀undergraduate฀ business฀ schools฀ (Lavelle,฀ 2006).฀
Although฀ the฀ ranking฀ provided฀ useful฀ measures฀ of฀ quality,฀ the฀ high฀ rank฀ of฀ some฀
schools฀ was฀ partly฀ due฀ to฀ the฀ quality฀ of฀

incoming฀students฀and฀educational฀resources฀
rather฀ than฀ the฀ ability฀ of฀ the฀ school฀ to฀ add฀
value.฀ In฀ this฀ article,฀ the฀ authors฀ derive฀ a฀
statistical฀ frontier฀ with฀ alternative฀ reranking฀
of฀ schools฀ on฀ the฀ basis฀ of฀ value฀ added.฀The฀
authors฀ranked฀some฀schools฀high฀according฀
to฀ both฀ measures,฀ but฀ other฀ schools฀ experienced฀ a฀ major฀ increase฀ in฀ rank฀ when฀ the฀
value-added฀ adjustment฀ was฀ applied.฀ The฀
authors฀ discussed฀ implications฀ for฀ students,฀
parents,฀and฀business฀schools.฀
Keywords:฀business,฀college,฀ranking,฀
salary,฀SAT
Copyright฀©฀2007฀Heldref฀Publications

฀

A

lthough฀ master฀ in฀ business฀
administration฀ (MBA)฀ programs฀

had฀ long฀ been฀ the฀ subject฀ of฀ widely฀
publicized฀rankings,฀undergraduate฀business฀ programs฀ recently฀ received฀ highly฀
visible฀ national฀ rank฀ in฀ Business฀ Week฀
(Lavelle,฀2006).฀This฀ranking,฀like฀MBA฀
ranks฀ before฀ it,฀ relied฀ on฀ a฀ cluster฀ of฀
measures฀ to฀ proxy฀ the฀ quality฀ of฀ the฀
programs.฀ The฀ measures฀ used฀ by฀ Business฀Week฀included฀student-faculty฀ratio,฀
average฀SAT฀scores฀of฀students,฀surveys฀
of฀ students฀ and฀ recruiters,฀ the฀ average฀
salary฀of฀new฀graduates,฀and฀tuition.
All฀ these฀ measures฀ have฀ a฀ positive฀
relationship฀ to฀ the฀ quality฀ of฀ undergraduate฀ business฀ education.฀ However,฀
there฀is฀an฀emphasis฀on฀input฀measures.฀
A฀ranking฀that฀highly฀depends฀on฀inputs฀
would฀ miss฀ the฀ efficiency฀ with฀ which฀
the฀inputs฀are฀converted฀into฀the฀desired฀
output:฀ the฀ human฀ capital฀ imparted฀ to฀
the฀ students.฀ That฀ is,฀ how฀ much฀ more฀
productive฀ are฀ the฀ students฀ for฀ having฀
attended฀the฀business฀school?

Tracy฀ and฀ Waldfogel฀ (1997)฀ compared฀ MBA฀ programs.฀ They฀ adjusted฀
graduate฀ salary฀ data฀ for฀ a฀ set฀ of฀ input฀
measures฀ to฀ get฀ a฀ value-added฀ measure.฀ They฀ found฀ considerable฀ differences฀between฀their฀ranking฀and฀those฀
that฀ were฀ based฀ on฀ inputs.฀ Similarly,฀
we฀compared฀undergraduate฀programs.
The฀ dependency฀ of฀ rank฀ on฀ the฀
input-based฀ rankings฀ leave฀ open฀ the฀
possibility฀that฀a฀school฀would฀be฀dis-

tinguished฀ mainly฀ because฀ it฀ started฀
with฀good฀students฀and฀lavish฀resources฀but฀added฀little฀value.฀Conversely,฀a฀
school฀might฀have฀started฀with฀smaller฀
resources฀but฀combined฀inputs฀and฀curriculum฀ with฀ such฀ efficiency฀ that฀ it฀
achieved฀ unexpectedly฀ good฀ results.฀
Some฀ schools฀ might฀ be฀ better฀ able฀ to฀
focus฀ scarce฀ resources฀ on฀ education฀
than฀other฀schools.
A฀ firm฀ that฀ produces฀ $1฀ million฀ of฀
output฀ with฀ $1.1฀ million฀ of฀ inputs฀ is฀
not฀an฀asset฀to฀either฀its฀stockholders฀or฀

society.฀A฀firm฀ that฀produces฀$100,000฀
worth฀ of฀ output฀ with฀ $10,000฀ worth฀ of฀
inputs฀ is฀ more฀ valuable.฀ With฀ similar฀
logic,฀one฀could฀argue฀that฀a฀university฀
that฀takes฀highly฀motivated฀and฀capable฀
students,฀teaches฀them฀in฀small฀classes,฀
and฀ does฀ not฀ produce฀ proportionately฀
capable฀ graduates฀ does฀ a฀ poorer฀ job฀ of฀
education฀ than฀ a฀ school฀ that฀ produces฀
above-average฀ graduates฀ from฀ belowaverage฀inputs.
We฀ propose฀ a฀ method฀ of฀ adjusting฀
the฀Business฀Week฀rank฀(Lavelle,฀2006)฀
to฀ account฀ for฀ value-added฀ considerations.฀When฀adjusted,฀the฀rank฀reflects฀
that฀some฀schools฀outside฀the฀Business฀
Week฀ Top฀ Ten฀ are฀ nonetheless฀ quite฀
effective฀ in฀ converting฀ inputs฀ into฀ outputs.฀ Others฀ keep฀ very฀ similar฀ ranks,฀
whereas฀ some฀ highly฀ ranked฀ schools฀
seem฀ to฀ owe฀ their฀ distinction฀ more฀ to฀
the฀quality฀of฀inputs฀than฀to฀their฀ability฀to฀add฀value.฀It฀should฀also฀be฀noted฀
July/August฀2007฀

357

TABLE฀1.฀Effects฀of฀SAT฀Scores,฀Student฀Faculty฀Ratios,฀and฀Tuition฀on฀
Starting฀Salaries฀for฀the฀Most฀Recent฀Graduating฀Class฀of฀Business฀Students
Variable฀
Intercept฀
Tuition฀
Stu/Fac฀
SAT฀score฀฀

Parameter฀estimate฀

Standard฀error฀

t(53)

3247.4฀
0.07319*฀
–118.61**฀

33.619**฀

6467.7฀
0.03981฀
39.950฀
5.1168฀

0.5
1.84
–2.97
6.57

Note.฀Stu/Fac฀=฀Student฀to฀faculty฀ratio.฀R2฀=฀.6809.฀Adjusted฀R2฀=฀.6629.
p฀