Stanford Business

AUGUST 2006


Accounting for a Revolution

Bill Beaver documented what is now common knowledge: Buyers and sellers value accounting information.


Photo by Peter Stembler

William Beaver recalls the night 38 years ago when he struck career pay dirt.

It was after 10 p.m., and Suzanne, his wife, waited in the car as the young assistant professor at the University of Chicago dashed into the mainframe lab to see if the program he’d punched onto a huge stack of computer cards had worked. He was due to present a paper at an accounting conference—the deadline was in a week—and still didn’t know if he’d have anything to put forward.

“I pulled out that printout and thought, ‘Well, now I think I have a paper,’” Beaver says, characteristically modest.

The paper turned Beaver, now the Joan E. Horngren Professor of Accounting, Emeritus, at the Graduate School of Business, into a rising star in the research field of accounting. His printout proved for the first time that the stock market reacted strongly to corporate earnings announcements—both in terms of price changes and trading volumes—and paved the way for a sea change in the way financial accounting data was viewed. That the market cares about earnings is a given today. But at the time accounting was primarily viewed as a “measurement” profession, rather than as providing valuable information to the marketplace. Beaver’s research dramatically refuted this assumption.

The paper, published in 1968, made an immediate and prolonged splash. (More than 20 years later in 1989, it won the Seminal Contribution to Accounting Literature Award—sometimes referred to as the “Nobel Prize of accounting”—one of only four times the award has been bestowed.) In 1969, his reputation growing, Beaver was awarded the Notable Contribution to Accounting Literature Award for his doctoral dissertation. It proved for the first time that financial statements could be used to successfully predict bankruptcy—another example of something taken for granted today, but which broke new ground then.

In short order Arjay Miller, then dean of the Business School, recruited Beaver for Stanford. “I flew to the Midwest, not to evaluate Bill—our faculty had already done this—but to do my best to persuade him to join us here,” Miller said at a dinner in Beaver’s honor last summer.

“Bill helped us all to answer a very important question, which is whether accounting information—which we all agree has limitations—could be put to ‘real world’ uses,” says Maureen McNichols, the Marriner S. Eccles Professor of Public and Private Management and a collaborator with Beaver. “Thanks to the truly revolutionary work that Bill pioneered nearly 40 years ago, we now know that it can.”

But Beaver nearly took a different route in life. Born in Peoria, Ill., in 1940, the only child of self-made parents, he graduated magna cum laude from Notre Dame in 1962. His finance professor suggested an academic career but Beaver opted to begin his MBA at the University of Chicago while working part time for a mortgage company, as much to support his by-then retired parents as to put himself through school. “I guess, like any other MBA, I was hoping to make millions of dollars,” he says.

Then he got engaged to be married. “I saw the people ahead of me in the mortgage company and what my life would be 5, 10, 15 years out,” he says. “I wanted something different.” Specifically, he wanted a family and sufficient time to enjoy one. “I began to perceive academics as one of the few professions where you have the potential to excel at your field and still have a family life.”

Beaver’s dedication to family is one of the things that define him, say colleagues. Married for 41 years, he has two daughters and a son. “They’re my battery chargers,” he says. When he was named the American Accounting Association’s Distinguished International Lecturer in 1979, an honor that would send him on a lecture tour of 11 universities in 6 countries in 6 weeks, he accepted on the condition his family could come. “That was the only thing that got me through that. Otherwise, I would have burned out.”


Bill Beaver, with wife Suzanne in 2004, when he became the only professor to receive all
three student teaching awards.
Photo by Steve Castillo

In addition to his research, Beaver is acclaimed for his teaching. He is the only person to win all three student-elected teaching honors at the Business School: the MBA Distinguished Teaching Award (1985), the Sloan Teaching Excellence Award (1999), and the PhD Distinguished Service Award (2004). What’s remarkable is that the three populations are very different, said Mary Barth, the Joan E. Horngren Professor of Accounting and senior associate dean for academic affairs. “He takes what he knows, which is vast and deep, and shares that knowledge with this broad range of people coming from a variety of places,” Barth says. “It’s quite a feat.”

Constance Lutolf-Carroll, MBA ’82, was a civil engineer before she took Beaver’s core accounting course in 1981. She now lives in Milan and lectures at business schools all over Europe. “I had trouble remembering which things were debits and which were credits,” she recalls, but Beaver made accounting interesting. “He was into proving market efficiency and convinced us that dressing up accounting earnings in the hope of fooling Mr. Market would be a pretty futile exercise,” she says. “Not all the class agreed with him, so we had some lively discussions.”

Barth, one of Beaver’s “foster” children in the academic sense, remembers her first meeting with him. At the time an audit partner at Arthur Andersen, she was wondering if she should try a PhD program but concerned that she might not fit in. Driving from his campus office to her home—a distance of some 3 miles—she was so energized by Beaver that she stopped at a gas station to call her husband. “I just couldn’t wait to share my excitement.”

Barth says she is hardly an isolated example. “He’s sent a whole bunch of us out into the world and we’re all trying to measure up.”

After taking emeritus status in March 2006, Beaver is still teaching classes and influencing students. “When you walk past his office, what you typically find is that his door is open, he’s with a student and is enthusiastically conversing about accounting research,” McNichols says.

Outside the classroom, he’s also a born teacher, says Cindy Zollinger, managing director of the Menlo Park, Calif., office of Cornerstone Research, which provides consulting services to attorneys involved in legal and regulatory proceedings. Zollinger has worked with Beaver for more than 25 years as an expert witness. “Because of his expertise, he could just come in and tell us what he’s going to do [in court],” she says. “But he takes the time to explain his reasoning—we’ve all learned so much from him.” Jeff Maggioncalda, MBA ’96, agrees. The president and CEO of Financial Engines, Maggioncalda worked at Cornerstone as an analyst before earning his MBA. “I consider him a mentor,” he says of Beaver. “He always paid me the courtesy of asking me what I thought and made me feel that I had something to offer.”

Charles Horngren, the Edmund W. Littlefield Professor of Accounting, Emeritus, who has known Beaver since he was a “brilliant” graduate student, makes a similar observation: “He never cut anyone off; he let them ask their questions, and then he responded in a way that explained his points concisely and precisely.”

The excitement of that first data printout may be only a memory, but Horngren is certain Beaver will keep seeking a repeat. “When we become emeriti, we’re finally free to do the things that are really important—the research in which there are no pat answers or tidy payoffs but which has the potential to lead to huge paradigm shifts,” he says. “I am sure that this is what Bill will do. Accounting needs it.”

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Bill Beaver in 1969
Archive photo


Bill Beaver in 1974
Photo by J. Mercado