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Though much disparaged, scholarly research by business faculty translates into higher salaries for the MBAs they teach, study finds

January 1, 2011

For more information, contact: Benjamin Haimowitz, HHaimowitz@aol.com

Perhaps no academic activity has been more roundly assailed during the past two decades than scholarly research at business schools. Business scholarship, its many critics contend, has become overly theoretical and largely irrelevant to real-world management -- so much so that one much-cited article in the Harvard Business Review charged that "relevance is often systematically expunged from these [scholarly] journals."
 
Is this large body of scholarly research as irrelevant to success in the business world as its critics claim? Quite the contrary, a new study suggests .
 
The paper, in the current issue of Academy of Management Learning and Education, concludes that "the level of scholarly research activity at business schools appears to add considerable economic value to MBA students' future salaries."
 
How much added value? As much as 21%, according to the report, which was co-authored by Jonathan P. O'Brien of Rensselaer Polytechnic Institute, Paul L. Drnevich and Craig E. Armstrong of the University of Alabama, and T. Russell Crook of the University of Tennessee. Given that the average salary of MBAs from the top 100 schools three years post-graduation is about $115,000, the researchers estimate that the salary premium resulting from an optimal research program amounts to about $24,000 per year.
 
"This result," they write, "strongly suggests  that research-intensive schools generally do a superior job in helping their students acquire and hone their knowledge, skills, and abilities, which pays financial returns to the students through their future employment...One might conclude that the actual state of the relevance of business school research is not nearly as dire as ...some have suggested."
 
But research isn't always an unmitigated blessing, the study concludes. At some point the law of diminishing returns kicks in, and the relationship between additional research and post-graduation salaries becomes negative. The authors conjecture that, "if a school places an excessive focus on research...faculty will invest relatively less effort in teaching and students outcomes will suffer." But this apparent surfeit of research occurred only in about 20 schools in the study's sample of 658 -- that is, those in the top three percentile of scholarly productivity -- and even there graduates enjoy a salary premium absent from schools in which there is no research.
 
The findings derive from an analysis of the relationship of research productivity at American and other business schools and the salaries of MBAs three years after receiving their degrees -- specifically, the percentage increase over what they earned before enrolling in business school. The salary data were obtained in the period 2001 through 2008 by the Financial Times  as part of its annual ranking of the top business schools worldwide. The professors focused on salaries three years after graduation, as opposed to MBA starting salaries, because they reasoned that the former were "more reflective of the value of the knowledge, skills, and abilities provided by the business school education." 
 
Data on research productivity were obtained from a social science citation index for the eight years coinciding with the period the post-MBAs were enrolled in business schools. The professors tabulated the number of publications in 254 journals for faculty of 658 schools (82% from the US) belonging to the Association to Advance Collegiate Schools of Business. Each school was assigned three measures of research productivity -- number of publications per full-time faculty member in A-publications (the 40 scholarly journals with the highest impact ratings); in B-publications (the 80 journals ranked from 41 to 120 in impact); and in C-publications (all remaining scholarly journals). 
 
The investigators were at pains to separate the possible effects of research productivity from those of other factors that are likely to influence post-MBA salaries, such as schools' reputations and schools' financial resources. To control for the latter the researchers employed a measure of schools' operating budgets per full-time faculty member, and to control for the former they divided the schools into three tiers -- tier 1 consisting of the top 50 schools in the FT rankings, tier 2 consisting of the schools ranked 51 to 100, and tier 3 consisting of all other schools.
 
Analysis revealed that the amount of faculty research in both A- and B-journals was significantly related to post-MBA salaries and that, all else being equal, faculty publication in both was associated with substantially higher salaries than those earned by graduates from the 25% of the schools in the sample that produced no published research at all. In the words of the report, "Student salaries [three years post-MBA] maximize at 0.15 A-publications and .08 B-publications per full-time faculty member per year, which produces a predicted annual increase in student salary of about 21%. Conversely, 0.23 A-publications and zero B-publications produce a predicted increase of just 7.3%. This suggests that a moderately broad view of academic scholarship, which can theoretically encompass a wider array of new (and sometimes even more radical) ideas, pays dividends to students."
 
The authors concede that the study doesn't "directly address whether business schools could have added even more value for their students if they emphasized practical relevance (in research and teaching) over rigorous theory-driven scholarly research." Still, the benefit of that scholarly research, they find, bears comparison to the advantage gained from attending a school with a high reputation or one with considerable financial resources. Comments Prof. O'Brien: "Our results suggest that, all else being equal, MBAs from tier-1 schools average about 27% more salary per year than those from tier-3 schools, and that MBAs from top-budget schools earn about 30% more than those from schools with average budgets. The 21% premium from an optimal research program may fall short of those numbers, but it certainly compares favorably to them."
 
As to why scholarly research that is so often criticized for lacking practical value should have such a pronounced effect on post-graduation salaries, the professors surmise that "even if an individual faculty member's own research has little relevance to practice, being actively engaged in research helps faculty keep abreast of, and involved with, cutting-edge knowledge developments in the field...Active engagement in knowledge creation through research, as opposed to simply teaching from textbooks and educational materials that others write, may help faculty hone their analytical skills and consequently emphasize a more rigorous approach to problem solving...[that] might resonate with students and [help them] make better decisions once they complete their programs."
 
The study, "Does Business School Research Add Economic Value for Students?" is in the December-February issue of Academy of Management Learning and Education. This peer-reviewed publication is published quarterly by the academy, which, with more than 18,000 members in 102 countries, is the largest organization in the world devoted to management research and teaching. The academy's other publications are the The Academy of Management Journal, The Academy of Management Review, and Academy of Management Perspectives.
Media Coverage:
Albany Times-Union (NY). Research reputation adds value to MBAs. (Thursday, January 27, 2011).
Birmingham News (Ala.). UA professors' study raises eyebrows on which graduates make more money. (Saturday, January 29, 2011).
BusinessWeek.com. For MBAs faculty research pays off. (Friday, January 07, 2011).
Cool Avenues. MBA salary levels rise with b-school research. (Monday, March 28, 2011).
Financial Times. Business school practitioners key to higher salaries. (Wednesday, January 26, 2011).
Financial Times. Optimal balance between research and experience. (Tuesday, February 01, 2011).
Financial Times. Research generates better business scholarship. (Monday, January 31, 2011).
Financial Times. Why business still ignores business schools. (Tuesday, January 25, 2011).
hbr.com. Grads of research-focused biz schools get higher pay. (Thursday, January 20, 2011).
SiliconIndia.com. Scholarly research at B-schools turns into higher salaries for MBAs. (Thursday, January 20, 2011).
The Times (London). Graduates cash in on research's added value; Academic output can produce a startling effect on salaries. (Wednesday, February 16, 2011).

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