CNN.com - Luck or judgment?

Bull or bear? How the markets can determine an MBA's career.

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FT's Executive MBA Rankings
1. Wharton, U.S.
2. Hong Kong UST, China
3. London Business School, UK
4. Instituto de Empresa, Spain
5. Fuqua, Duke, U.S.
6. Chicago GSB, U.S.
7. Columbia, U.S.
8. Kellogg, U.S.
9. Stern, NY, U.S.
10. Cass, City University, UK
Source: Financial Times 2006

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EMBA SNAPSHOT

Executives taking the top EMBA courses in the U.S., Europe and Asia have average salaries of around $130,000 to $200,000.

A typical EMBA student is likely to be aged in the early 30s, with 6-10 years of working experience.

A top EMBA course can cost $100,000. Customized courses start at a few thousand dollars.

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(CNN) -- Many a go-getting MBA student has left business school set on a career in investment banking, confident their talent will see them through. But according to new research, another factor plays a big part -- chance.

The innovative study by Paul Oyer, an associate professor of economics at the Stanford Graduate School of Business, makes chilling reading for those intent on getting a high-salary job in investment banking.

For while he prefers not to use the word "luck," his research shows that the external market conditions when an MBA student graduates play a major role in whether or not they enter the industry.

His research found that many of those who graduate during a market slump never get a chance begin a Wall Street career -- something that dramatically reduces their lifetime earnings.

"It always struck me that being in the right place at the right time was important in career paths," said Oyer, explaining the reasons for his research.

He examined the long-term career choices and salaries of MBA graduates from Stanford over more than 35 years, uncovering a seeming correlation between the proportion who find lucrative investment banking positions and the then-state of the stock market.

As an example, a healthy 26% of Stanford MBAs who graduated two years before the major stock market crash of 1987 became investment bankers, a category Oyer also used to take in money managers and venture capitalists.

In contrast, two years after the crash just 17% of newly-minted Stanford MBAs took that career path.

Apart from the blow to career aspirations, this change also had a dramatic effect on graduates' bank balances.

Based on the salaries provided by the thousands of MBAs in the survey, Oyer calculated the lifetime income of an MBA who went into investment banking, using current values, was anything between $2 million and $6 million more than one who went into a non-banking career.

"Thus the classes of 1988 and 1989 could expect significantly lower lifetime income due to the timing of their graduation than the classes of 1985 and 1986," said Oyer.

Staying put

One reason for the size of the discrepancy was that those who entered investment banking seem to stay in the industry into the long term.

While up to a tenth of people joining investment banking after an MBA leave in the first few years following graduation, this slows considerably, and after the year five the numbers stay pretty constant.

Thus, Oyer concluded, while it might seem logical to assume that a only certain percentage of MBA students have a natural aptitude and dedication to investment banking, the evidence does not back this up given that even bull market entrants tend to stay the course.

"This tells me that there is a deep pool of potential investment bankers in any Stanford MBA class," Oyer said.

"The idea has long been that MBAs change jobs all the time. But what this study shows is that they are not jumping in and out of investment banking. It's pretty sticky. Once you're there you tend to stay; once you've started down another path, you're not likely to move to a Wall Street firm."

One side-effect of this phenomenon appears to be that strong financial markets means fewer MBAs starting up their own companies.

"One question you would naturally ask, if in bull markets more people go into investment banking, what they are not doing?" Oyer said. "And because there are a fairly limited set of things that MBAs do, there's some evidence that when bull markets move people onto Wall Street, it takes away from consulting and entrepreneurial careers."

The research means business school professors should perhaps take their students' worries more seriously, he explained.

"Every year our students get very anxious about the state of the job market," he said.

"I always thought -- I was the same way when I was finishing school -- they were being silly. But as it turns out, we had pretty good reasons to be worried about the state of the job market, as it would affect a lot of us for a long time to come."

Luck or judgment?

Study indicates stock market may shape MBA careers

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Staying put