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MBA INSIDER: BEST SCHOOLS FOR FINANCE By Brian Hindo The Backbone of B-School - Part 1 The discipline of finance that MBAs learn today has become an influential force in the markets, public policy, and in Corporate America 
INTRODUCTION From their beginning, business schools occupied a precarious place in the larger university setting. Ever since Philadelphia financier Joseph Wharton lent his name (and money) to the University of Pennsylvania in the late 1880s to found the first collegiate school of business, high-minded liberal-arts professors have looked askance at what they viewed as the vocationally oriented pedagogy of B-schools. Some professors of economics have taken the same view, even while co-existing with their pragmatic cousins in departments of finance -- the backbone of many B-schools. These days, academic finance of the variety taught in B-schools has finally come into its own as an interdisciplinary, influential force in the markets, in public policy, and even in Corporate America. Finance professors Robert Merton, now at Harvard Business School, and Myron Scholes, currently a professor emeritus at Stanford University, won the 1997 Nobel Prize based on their studies of options pricing with the late Fischer Black. Columbia finance professor R. Glenn Hubbard recently served on President George W. Bush's Council of Economic Advisers. And in the summer of 2003, University of Chicago finance professor Raghuram Rajan was named chief economist of the International Monetary Fund. "The appointment of Rajan was not something you could have anticipated 10 years ago," says Suresh Sundaresan, chairman of the finance department at Columbia University's B-school. "The fact that he's being embraced as the chief economist of the IMF reflects that finance has come a long way." In fact, the relationship between finance as taught in B-schools and as it's practiced in industry and government is perhaps closer than ever. For proof, check your mutual fund. Chances are, the portfolio manager subscribes to modern portfolio theory -- an outgrowth of finance research -- and diversifies the fund's investments. Example two: Black's, Scholes', and Merton's Nobel-winning research on options pricing, which is applied in a staggering variety of ways in the financial world, for everything from creating CEO pay packages to risk management to hedge-fund investing. "If you want a poster child for the importance of the accumulation of intellectual capital," options pricing is it, says Cliff Smith, a finance professor at the University of Rochester's Simon School. At the top B-schools for finance, that connection between academia and industry manifests itself in the classroom. Even the hard-core research that B-school professors produce -- primarily of interest in PhD curriculums -- finds its way into the teaching of their MBA students. "I wrote a paper on buyout and venture-capital returns this spring, and a month later I presented it to my private-equity class" says University of Chicago finance professor Steven Kaplan. "They were [then] at a point where they knew as much about the real evidence on private-equity returns as anybody." Technological advances have added to the sophistication of finance instruction. Now, even MBA students can perform complex mathematical or statistical tasks using tools as simple as spreadsheets or as complex as simulated trading floors. "With a lot of theory we presented 5 or 10 years ago, we told students 'This is how it works,'" says Sundaresan. Today, "students can compute a fairly complicated options pricing model and bring me the numbers." Historically, academic finance has been divided into two branches: corporate finance (which examines companies' financial structure and the ways in which they attract and use capital) and investments (which delves into how the capital markets work). The economic slowdown that followed the boom of the late '90s has provided plenty of grist for research and teaching on both subjects. In the former, corporate-governance experts have been at the forefront of policy debates over the growing impact of shareholders on management decisions. Similarly, those who research bankruptcy trends have enjoyed an embarrassment of riches lately, and the popularity of courses on those subjects has swelled commensurately. On the investment side, the questions raised by the Internet boom are obvious: Why did the bull market run so far, so fast? Can it happen again? And what are the proper, or at least reasonably justifiable, valuations for stocks, bonds, and other securities? Researchers into subjects such as financial engineering (a highly mathematical branch of risk management) and market microstructure (the study of day-to-day fluctuations in securities markets) have been furiously updating their case studies and class lectures to fit the changing times. That said, financial academics tend to go about their work without reacting to every boom and bust in the economy. After all, finance is still finance, whatever else is happening. And MBA programs are designed primarily to provide a framework and a toolkit for graduates to use when they reenter the workforce at banks or large corporations. Indeed, Wharton finance professor Andrew Metrick figures that about 85% of what MBAs learn in finance classes is what he calls, "environment-free" -- that is, usable regardless of what's happening on the outside. "The world has changed," concedes Metrick. "It used to be we were fixing up buildings, and now we're building new ones. But that doesn't really change how you use a hammer." ------------------------------------ The Top Finance Programs The following B-schools win acclaim from students, researchers, and recruiters for being at the vanguard of finance education (in alphabetical order): University of Chicago: The current faculty is upholding the Chicago tradition of cutting-edge research. MBA students benefit by seeing the results in the classroom. Columbia University: Its large finance faculty maintains close ties to Wall Street. The course menu is as extensive and in-depth as it gets. Harvard Business School: The case-study method underpins a practical approach to finance. Widely followed researchers keep the case-study library fresh and relevant. MIT (Sloan): A small but influential department. Stewart Myers wrote the book on corporate finance, literally, while Black and Scholes did their Nobel-winning options work here. University of Pennsylvania (Wharton): Its large, diverse faculty affords students an array of philosophical and pedagogical options rivaled by few other schools. Data: BusinessWeek Online How They Made the Cut This list of leading schools represents the best judgment of the BusinessWeek Online staff, based on information and reporting that includes the following: The rankings of corporate recruiters BusinessWeek polled for its 2002 B-school rankings; the number of electives a school offers in the subject and the number of full-time faculty who teach it; interviews with the department chairperson or leading academics at the school to review its strengths and weaknesses -– and those of competing schools; and an assessment of the school's contribution to research in the field. Note that we haven't ranked the leading schools in any order other than alphabetically. ------------------------------------ How Recruiters Rate the Schools The following MBA programs got the best marks for teaching finance: 1. University of Chicago 2. University of Pennsylvania (Wharton) 3. Columbia University 4. Harvard Business School 5. University of Michigan 6. Duke University (Fuqua) 7. Northwestern University (Kellogg) 8. University of Virginia (Darden) 9. Indiana University (Kelley) 10. Stanford University Data: BusinessWeek 2002 MBA Recruiters' Survey
 Hindo covers management education for BusinessWeek Online in New York
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