Wednesday, 27 August 2008

What is an MBA worth?

So asks the Economic Logician in his posting What is an MBA worth?

He discusses the results of a paper, The Economic Returns To An MBA by Peter Arcidiacono, Jane Cooley and Andrew Hussey who tackle this question using data from the GMAT, the standard test used to select MBA candidates. What is important about this data set is that it contains students that did not pursue the MBA, as well as what potential students were earning at the time they were taking the test and after studies.

The Logician writes
So what is an MBA worth? A raw regression with few controls gives a return of 9.4% for men and 10.4% for women. Add controls for ability, returns drop to 6.3% and 6.7%. Or use fixed effects, and returns are only 4.8% and 3.8%. These numbers are truly not impressive given cost and supposed prestige of those programs. Which begs the question: are all MBA programs equally valuable?

For a school ranked outside the top 25, a full-time or part-time MBA program is essentially useless, in particular after controlling for ability.
Given that all New Zealand MBA program are outside the 25, by a long way, you do have to ask What is the worth of a New Zealand MBA?

But you have have to keep in mind that the results are based on US data and that the average returns may be greater in New Zealand than in the US. But it does make you think. Are our MBA programs worth the time and effort and cost they involve?

3 comments:

Crampton said...

They're probably not worth much in the US, but it doesn't follow that they're also not worth much in NZ. Getting an MBA from a non-top programme in the US signals that you couldn't, or didn't care enough to, get into a top programme. Getting an MBA from one of the main schools here doesn't signal that you weren't good enough to get into Wharton; it signals that you're in New Zealand.

Paul Walker said...

I take your point, but we ship out a lot of students to top grad programs in other subjects so why can we ship out people to top MBA programs?

TopScholar said...

More and more MBA programs provide training that goes beyond general business management to provide subject area expertise.
So, for example, if your career interests are in the field of e-commerce, you can find MBA programs with a strong focus in that area.