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New Study Proves Mba Managers Reduce Company Payrolls But Don’t Always Help Increase Sales

Researchers have published data on the role of managers with MBAs on salaries and profitability. And the results, while striking, may not surprise you.

An NBER working paper indicates that within five years of the appointment of a director with a business degree, wages fall by 6% and the labor share by 5 percentage points in the United States compared to companies managed by non-commercial managers.

The National Bureau of Economic Research paper has not been peer-reviewed or submitted for NBER board review, but the findings could be a red flag for B schools (MBA schools) and business optimization practices.

Wage growth has slowed and labor’s share of national income has declined in many advanced economies over the past three decades. The paper argues that a contributing factor has been “changes in companies’ pay policies associated with the business training of their executives/CEOs”.

“Our final sample contained approximately 9,900 publicly traded US companies with complete CEO information,” the document states. “In 1980, only 26% of Compustat companies had CEOs with a business degree (non-MBA). This figure had risen to 43% by 2020. Almost all of the increase came from CEOs with an MBA, which has increased from 24% in 1980 to 37% in 2020.

Compustat is a database of financial, statistical and market information on active and inactive global companies. The article shows that Harvard Business School contributed 19% of CEO business degrees, followed by Wharton (8%) and Stanford (5%).

The results show that firms do not experience higher output, investment, or employment growth after hiring CEOs. “This suggests that business leaders are no more productive than their non-business peers,” the paper says.

The article goes on to illustrate that the reduction in wages seems to go hand in hand with a lower propensity of managers to share rents with workers. Rent sharing occurs when a business shares its profits after paying all factors at market rates with its employees.

But if a manager with an MBA leads to a reduction in employee salaries and not an increase in company profits, why are such managers hired?

Who benefits from the presence of such business leaders? Since business leaders did not alter growth or productivity, lower wages should imply higher profits.

To find this, researchers began looking at changes in corporate profitability, as measured by return on assets. And the results indicate that following a change in entrepreneur, return on assets increases by about 3 percentage points in the United States.

“Higher earnings also translated into higher stock prices,” the document said. “A clear group of beneficiaries of CEO-induced practices are shareholders.”

To be sure, the researchers conducted similar studies for MBA managers in Denmark and concluded that this “isn’t just an American phenomenon.”

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