Creativity & Innovation in Research Personal Observations for Junior Scholars

1. Creativity & Innovation in Research Personal Observations for Junior Scholars Presentation byGreg Waymireto AAA International Section Meeting Savannah, GAFebruary 22, 2013

2. Goal for Today • Goal: Offer some (hopefully) useful thoughts on the main problem faced by young scholars, which is developing a successful and fulfilling career that will span decades • Perspective: My personal experience over the course of nearly 35 years since I first entered a PhD program • Primary Takeaway: Creativity and differentiation are the keys to long-run success & happiness

3. Organization of Talk • Back to the Future • Why do we do research? • Imagination and creativity in research • Going off the deep end to discover the passion and life of a scholar • Parting thoughts

4. Back to the FutureA Survey of 1955 Accounting Review • Littleton, A. C., “The Logic of Accounts.” • Trueblood, Robert and W. W. Cooper, “Research and Practice in Statistical Applications to Accounting, Auditing, and Management Control.” • White, John Arch (AAA Director of Research), “Lists of Research Projects in Accounting: 1953-1954.” • De Roover, Raymond, “New Perspectives on the History of Accounting.” • Horngren, Charles, “Security Analysts and the Price Level.” (Yes Virginia, even the most famous of all textbook authors once wrote a dissertation!)

5. Fast Forward to 1968

6. Takeaways from the State of Accounting Research in the mid-1950s Would have been nearly impossible to see the magnitude of change coming less than 15 years later. (Horngren’s thesis was ahead of its time.) Change in scholarly research is discontinuous and rapid when it comes. (Thomas Kuhn) Specific nature of change cannot be predicted. Thus, the issue becomes: How can you survive in response to change, uncertainty, and the new opportunities created?

7. Why do we conduct research? • Private value – Provide understanding (& income) for ourselves. • Social Value - Provide understanding for others. • Passion – Explore issues because of inherent curiosity (or perhaps because of obsessive-compulsive disorder).

8. Competitive Advantage Should be Defined by Distinctive Agendas & Enduring Issues

9. My initial foray out of the mainstream Paperswith Kumar Sivakumar in early 1990s on earnings disclosure and stock prices in 1905-1910 period Motivation: Two post-WW II regularities • Income & price changes positively associated (Ball & Brown) • Voluntary disclosure favored good news (Patell & Penman) Thought experiment:Would these regularities replicate in an unregulated setting? Why 1905-1910? • NYSE allowed “unlisted” trading pre-1910. No listing agreements stipulating annual financial statement disclosure.

10. What did I learn by doing research that looked at settings other than today’s U.S? • Context matters! (Get close to the data and institutional details!) • Time consuming, but you learn a lot. • The value of a small sample • Uncharted territory is fun to explore - new data. • Got closer to my (naïve?) vision of what a scholar does. • It was easier to publish this work than it was my earlier “mainstream” work!!

11. What is the value of international or historical research? Fuel/Fodder for “thought experiments” that fuel the IMAGINATION and allow one to see counterfactuals based on worlds that differ from our own

12. Imagination & Creativity in Research • Research begins by “telling a story” or doing a “thought experiment.” • “Few things should be more interesting to a civilized economic theorist than the opportunity to observe the interplay between social institutions and economic behavior over time and place.”(Nobel Laureate Robert Solow) • Consequences: • Better informed as tocontext. • Can better envision the counterfactual and deconstruct modern institutions. (“Some see things as they are and say why while others dream things that never were and say why not.” G. B. Shaw)

13. Seeing the Counterfactual‘07 Annual Report of General Electric

14. Ain’t this just amazin’?

15. R&D fully expensed And, intangibles written down to $1!

16. Conservatism in asset valuation not restricted to intangibles

17. From the Auditor’s Opinion “True” Financial Condition Non-U.S. Auditor

18. So, what is learned from GE in 1907? • Fact: GE was one of the most highly valued common equities among early 20th century NYSE industrials. This implies that high stock valuations do not require “representational faithfulness” in financial statements. • Lack of mandatory disclosure and required audits doesn’t imply zero disclosure or financial reports subject to overstatement • WORLDS THAT LOOK DIFFERENT FROM OUR OWN ARE INHERENTLY INTERESTING TO EXPLORE!

19. Going off the Deep End • Discovering true passion for Research • I spent two years of my life past the age of 45 where I posed the same question the moment my feet hit the floor every morning: Why do humans record exchange transactions?

20. How did I come to consider this question? • FairValue Accounting for Revenue – Why would this have economic value beyond historical cost? Is this consistent with the historical evolution of accounting? • 2002 AAA-FASB Conference • Is it due to more “current” price data based on hypothetical transactions? • What information about the decision to trade is embedded in the record created at the time of exchange? (Accounting records reflect transaction price AND endogenous choice to consummate exchange.) • Evolution – What do other disciplines have to say? • Anthropology, economics, political science, sociology? • Cognitive neuroscience, evolutionary biology? • Path • Formulate issues based on historical knowledge & readings from other disciplines. • Develop hypotheses & gather evidence.

21. I learned that following your interests can lead one to some surprising places Some questions that I never thought I would consider when I got my PhD in 1984

22. And now for something completely different….. E. coli bacterium & Homo accounticus

23. E coli has memory-like functions E. Coli responds to environmental signals about the presence of food resources and toxins. The organism moves away from toxins and towards food resources. In this sense, E. Coli has memory-like functions that process environmental information and guide behavior (Allmen 2000, Evolving Brains). • The ability to remember past • interactions within one’s environment • and adjust behavior within that • environment is crucial to survival. Accounting is a feedback mechanism that allows people to alter behavior in an adaptive fashion. Do we routinely do accounting in our brains?

24. Homo accounticusis a primate possessing… A large brain “selected by” Nature for evaluating the consequences of, and communicating with others about, social exchange, and A complex culture characterized by extensive impersonal exchange, complex division of labor, & a network of institutions that support economic interaction. One of these institutions is called “accounting.”

25. What can homo accounticusdo? Quantify & calculate Compare & evaluate All co-evolved as part of HUMAN INTELLIGENCE Remember & learn Strategize & simulate Communicate

26. Are we homo accounticus? Neuronal Activation in the Ventral Tegmental Cortex Reported by Fiorillo et al. (2003) Based on Single Cell Recording for Two Macaque Monkeys in Response to Probabilistic Signals about Forthcoming Rewards Stimulus Sale Made Reward Cash Collected Stimulus Sale Made Reward Cash Collected Firing at actual receipt of reward when probability low Firing at signal of future reward when probability high

27. Parting Thoughts In Two Areas • Developing specific projects • More general suggestions on long-term scholarly development

28. Developing Specific Projects • Discipline is critical. Think first, compute second. • Write your introduction early and often. • Make sure you get the right data for the job you intend to do. • Carefully define the scope of the project. Corollary is to not sub-divide the land before you know whether anyone will buy any of the lots you’ll be selling. • Avoid a checklist mentality in dealing with referee reports. Ask what is driving the comments and fix them, which isn’t always what the referee suggests you do • Be patient with yourself and don’t get discouraged.

29. General Suggestions: Long-Term Development • Your opportunities will be determined by the quality of your work. Focus on the substance of what you’re doing. • Product differentiation “sells” research and sustains long-run success. Distinctiveness is critical to long-run growth. • Prepare for creativity by reading broadly in areas outside the accounting literature. • Work on important enduring issues rather than chasing fads. • “Networking” is costly and subject to rapidly diminishing marginal returns. • Take calculated risks on new project selection within a portfolio context. • Happiness is the goal. You have no obligation to be what others want you to be!

30. Thank You!