Ross L. Watts [Prepared by Philip Brown. When preparing this paper I have drawn from Ross Watts s c.v., my personal knowledge of him, and biographical information he has supplied] Formative Years Ross Watts was born in Hamilton, a suburb of Newcastle, NSW on 10 November, 1942. Both his parents families had deep roots in the Hunter Valley. William, the first of the Watts ancestors to live in NSW, came as a convict in the early 1800 s. William made good, became a free man, dealt in property, and died wealthy. Ross Watts is not the only writer in the family. The first family member on the mother s side came to NSW in 1848. He was somewhat of a scribe, writing letters to his family that described his journey to Sydney and the fertile nature of the Hunter Valley. Some of his letters are preserved in a museum in Sydney. Neither is Ross the only academic. Alwyn Horadam, a cousin of Ross s mother, was a mathematics professor at the University of New England in Armidale. Alwyn s daughter, Kathryn Horadam, is currently a mathematics professor at RMIT. Unlike Ross s ancestor William, Ross s parents were not well off and the family of four lived in a twobedroom housing commission cottage. Fortunately, both Ross s older brother Ian and Ross himself were good students. They were admitted to Newcastle Boys High School (NBHS), which Ray Chambers also attended (in the 1930 s). Ian graduated from NBHS with what Ross has described as gentleman s B s. The boys inherited their parents athletic prowess: both were fleet of foot, and played cricket, soccer and later rugby. While neither Ross s father Leslie nor his mother Elsie had any connection with accounting, both Ian and Ross qualified as chartered accountants. Ian took a position with the chartered accounting firm of Forsythe and Co. in January, 1958, after high school, and attended evening classes at the Newcastle campus of what is now the University of New South Wales, where he obtained a Bachelor of Commerce Degree. Around 1964 Ian left for England, where he worked as an accountant for Rothmans, gaining experience on early computers. On Ian s way back to Australia, from England, he stopped for a short while in Chicago, where Ross was by then a graduate student (see below). During Ian s stopover he worked as a Research Assistant gathering data for Ray Ball and Phil Brown (his contribution is acknowledged in Ball and Brown 1968.) On return to Australia Ian joined a Chartered Accounting firm in Armidale, soon became partner, and practised as a chartered accountant until he retired from the partnership about 20 years ago. Ross did very well in both high school mathematics subjects and when he completed high school the Commonwealth Statistician offered him a scholarship to study full-time at ANU. The offer was tempting, but required him to work for the Commonwealth Statistician for some years after graduation. Ross decided a better alternative was to enrol in a part-time (evening) Commerce degree at Newcastle University College, with financing from a Commonwealth Scholarship and a fulltime job with an accounting firm. Ross thought knowledge of economics, history and accounting acquired in high school would help him in a commerce degree and he has said he was not disappointed. A benefit from being a part-time student was that Ross learnt a significant amount about accounting and auditing while running audits at an early age. (Ross wrote his Commerce 1
honours thesis based upon his experience as an auditor.) He became a Chartered Accountant in February, 1964 at the age of 21 years and 3 months, having distinguished himself in the National CA examinations in Final Accounting and the subject of Bankruptcy. When Ross was studying for the CA law examinations he met and was tutored by Roy Woodman, who later became a Professor of Law in the University of Sydney s Law School. Ross says Roy s explanations for the nature and workings of English and Australian law were, years later, a great help when he began to write on law and economics, and the evolution of Anglo-American accounting. In 1966 Ross formally graduated from what had evolved into the University of Newcastle with first class honours in accounting, and decided on a career as an accounting academic. University of Chicago Against the advice of the accounting instructors at Newcastle University College, who thought he would do best were he to enter the accounting PhD program at the University of Illinois, Ross took the advice of Warren Hogan, then Professor of Economics at the College and decided to go to the University of Chicago. Warren, a New Zealander who was later to become Professor of Economics at the University of Sydney, had convinced Ross of the innovative nature of the Chicago economics department. (Apart from Warren Hogan s persuasiveness as an academic, he had the full credibility of a long-time rugby fan.) Another important factor influencing Ross s choice of Chicago was that Phil Brown had been there since 1963, and Ray Ball was about to go there as well. Ross had read one of Ray s papers in his honours course at Newcastle. In the nine months between completing his undergraduate honours degree and starting at Chicago (in October 1966), Ross married Helen Firkin, who he acknowledges helped him greatly for 42 years. Ross also continued to work at Forsythe & Co. and to play rugby for Newcastle City and the University of Newcastle. Ross believes his experience as an auditor, training as an accountant, legal education and Warren Hogan s economics prepared him relatively well for the intensity of the Chicago PhD program. While at Chicago Ross took classes from four future Nobel Laureates (Friedman, Stigler, Miller and Fama) and a number of other academic luminaries. Fama chaired his PhD thesis committee, and Merton Miller was a member of the committee too. Myron Scholes, another future Nobel Laureate, was an outside reader at Ross s PhD thesis defense. Ross s accounting mentor at Chicago was Nicholas Dopuch, a past editor of the Journal of Accounting Research. Ross co-authored a paper with Nick which was published in the Journal of Accounting Research in 1972. In the same year Ross was appointed to the journal s editorial board. Career as an Accounting Scholar Early Years Ross s first position after completion of his PhD studies was to an Assistant Professorship at the University of Rochester, in January 1971. Gene Fama had pushed Ross in the direction of Rochester, where Mike Jensen, another Chicago graduate, was a faculty member. Ross worked closely with Mike in the early years and it proved to be another milestone in Ross s quest to integrate accounting, economics, finance and law. As a personal note, Rochester had another advantage: it was a good base for someone like Ross who shared Mike s passion for skiing. 2
Ross returned to the University of Newcastle as Professor of Accounting in May, 1974. By then he had published a number of papers, including with Ray Ball. Ross and Helen had returned to Newcastle so their children could spend more time with their grandparents, but Ross soon found the administrative demands of running a university department did not afford him the time to pursue his research agenda to the extent he wished. Despite the personal strains of leaving Newcastle after a relatively short stay, in 1975 the Watts family returned to Rochester. Fortunately they have been able to return home frequently since then, seeing family or visiting Australian universities. On his return to Rochester Ross completed a hugely important paper that only now is receiving, from academics in Australia, the USA and elsewhere, the attention it so richly deserves. The paper was titled Corporate financial statements, a product of the market and political processes and it was published in the Australian Journal of Management in 1977, which was then edited by Ray Ball. In that paper Ross argued accounting reports are more a control mechanism than simply a measure of income or net assets. He also emphasized the role of the law in framing accounting practice. One indicator of the significance of Ross s 1977 paper is that the lead paper presented at the Journal of Accounting Research conference in Chicago in May 2015 considered it to be the trigger point for a now very large literature that focuses on financial accounting s control role. Accounting at Rochester, and its Relation to Finance and Corporate Governance. Rochester was a hive of research activity when Ross returned in 1975. The Journal of Financial Economics had been started in July 1974, with Michael Jensen as editor and Gene Fama and Bob Merton as co-editors; Ross Watts was appointed an associate editor. The Journal of Financial Economics quickly became a dominant journal in the field. Accounting was closely tied to financial economics at Rochester and so under strong encouragement from the Dean, William Meckling, Ross Watts and Jerry Zimmerman launched the Journal of Accounting and Economics, as co-editors, in March 1979. It was soon recognized as one of the top three accounting journals, and it appears, over time, to have enjoyed the highest number of citations per article of the three. In 1978 Ross Watts and Jerry Zimmerman published a watershed paper in The Accounting Review: Towards a positive theory of the determination of accounting practices. It was the first of a series of prize-winning papers they wrote and has generated about 2,500 Google Scholar citations. Their book on positive accounting theory, published in 1986, has garnered more than 5,500 Google Scholar citations and has been adopted or adapted in numerous accounting courses world-wide. Another of Ross s best-known papers was co-authored with Jerry Zimmerman and published in the Journal of Law and Economics in 1983: Agency problems, auditing and the theory of the firm: some evidence. It traced the development of Anglo-American accounting and how it changed as the nature of business changed over the centuries. The evidence they cited suggested strongly that accounting financial statements were not directed at valuing the firm per se, but rather they were significantly influenced by the demand for corporate control and inputs into valuations. Interestingly, many of the paper s more than 1,000 citations have appeared in the literature on law and economics. Ross Watts has argued the corporate control theme is consistent with the way financial firms and consortiums of banks control their corporate loans. For instance, lending agreements typically include covenants that use accounting numbers as a signal of possible problems within the firm. The lending firm or lead banker investigates any accounting flags and may for example call the loan, tighten covenants, or in some cases decide to do nothing. 3
In more recent years Ross has focussed on conservatism in accounting, a theme that has taken him back to the history of accounting and corporate control. His two explanatory papers on accounting conservatism, published in 2004 in Accounting Horizons, have almost 3,000 citations between them and would be familiar to almost every financial accounting academic and most of their students. As already indicated, Ross Watts s scholarship extends beyond the accounting literature. One of his best known papers, with more than 3,500 citations, is The investment opportunity set and corporate financing, dividend, and compensation policies. This paper was written with Cliff Smith and published in the Journal of Financial Economics in 1992. It is also noteworthy that the finance literature has recognized conservatism as an important governance control variable. Since Rochester In 2005 Ross Watts resigned from the University of Rochester and took a position in the accounting group at Massachusetts Institute of Technology (MIT). While at MIT he has published five papers in leading journals: Watts, Accounting and Business Research 2006 (>150 citations); LaFond and Watts, The Accounting Review 2008 (>600 citations); Khan and Watts, Journal of Accounting and Economics 2009 (>450 citations); Ramanna and Watts, Review of Accounting Studies 2012 (>300 citations); and Roychowdhury and Watts, Journal of Accounting and Economics 2007 (>400 citations). Ross Watts s Scholarship, in Summary Google Scholar is probably now the most heavily used citation index of articles published in academic accounting and finance journals, worldwide. While it may be more instructive for scholars to read papers rather than simply to count the number of citations they attract, it is still worth noting that the total number of Google Scholar citations to papers written or co-written by Ross Watts was close to 32,000 at the end of September 2015. This is undoubtedly one of the highest, if not the highest, citation count for any one accounting author s publications in a research journal or book. The corresponding Harzing citation count for Ross L Watts was of the order of 30,000 at the time of writing this nomination, which compares, for example, with almost 20,000 for William H. Beaver and 22,500 for Ray Ball. That said, Ross Watts is still writing, and Google Scholar is still counting! Other Evidence of Ross Watts s Stature in the Accounting Community There are many other indicators of Ross Watts s enormous stature in the accounting academic community that could be mentioned. Here is a brief list of some of them. Keynote speeches, endowed lectures and special lectures: Ross Watts has given around 20, including seven in the last six years. Major honours and awards (in date order): University of Newcastle Alumni Medal for Professional Excellence, October 21, 2013; American Accounting Association FARS Inaugural Lifetime Achievement Award, January 12, 2013; American Accounting Association Seminal Contribution to Accounting Literature Award (with Jerold L. Zimmerman) August, 2004; American Accounting Association Outstanding Accounting Educator Award, August, 2000; American Institute of 4
Certified Public Accountants Award for Notable Contribution to Accounting Literature (awarded in 1978 and again in 1979 for papers with Jerold L. Zimmerman). Editorial involvement: Founding co-editor of Journal of Accounting and Economics; Director, Accounting Research Network, Division of Social Science Research Network (SSRN); Founding editor, Journal of Accounting Abstracts, 1995-1997 and Financial Accounting Abstracts, Managerial Accounting Abstracts and Auditing, Litigation and Tax Abstracts, 1997-present; Consulting editor, Journal of Contemporary Accounting & Economics 2005-present and Asia- Pacific Journal of Accounting & Economics, 1999-2005; Board member, Australian Journal of Management, 2010-present (Associate editor, 1976-1981); Member, Advisory Board, Journal of Applied Corporate Finance since 1988 and Journal of Financial Abstracts since 1994. PhD students: to date, Ross Watts has chaired the PhD committees of 22 PhD graduates (20 at the University of Rochester and 2 at MIT), many of whom have made a major contribution since graduation (for instance Robert Holthausen, Thomas Lys, Paul Healy, Douglas Skinner, Amy Hutton, Richard Sloan and Patricia Dechow); and he has been a member of the PhD committee of perhaps another 20. Conclusion Visiting university appointments, which include: UNSW, Monash, Otago, MIT and Northwestern. Ross Watts has had a stellar career as an accounting academic, since he chose to pursue accounting as a teenager living in Newcastle, NSW. Indeed, Ross may well be judged by many as having made a singularly monumental contribution to financial accounting scholarship over 40 years. I am delighted to nominate Ross L. Watts for election to the Australian Accounting Hall of Fame, as an Australian accountant of international acclaim. Philip Brown 10 October, 2015 Encl.: Ross Watts, c.v. and biographical material upon which I have drawn. 5