Episode 120 - Haresh Sapra: "Be a student. Experiment. Learn. Better yourself."

Haresh Sapra is the Charles T. Horngren Professor of Accounting at the Chicago Booth School of Business. Originally from a sugar factory on the island of Mauritius, Professor Sapra dreamed big with his family's encouragement and found his strength in accounting.   Professor Sapra was an auditor before he pursued a PhD and finally landed a position as an academic at the University of Chicago. He credits his journey to his willingness to experiment and change. Tune in to learn more about his life journey!

Transcript

Stephen 00:00
Hello, and welcome to The Course! I'm your host, Stephen, and today I'm speaking with Professor Haresh Sapra of the University of Chicago's Booth School of Business. Professor Sapra is the Charles T. Horngren Professor of Accounting at the Booth School of Business, as well as the editor of the Journal of Accounting Research.

He has won teaching awards in all the programs at Booth, and been named one of the top ranked professors in Business Week's Guide to the Top Business Schools. He's here today to talk to us about his early life on the island of Mauritius, how he came to learn and love what he calls the language of business, and of course, how he became a University of Chicago professor.

Professor Sapra, welcome to The Course. Good morning. It's lovely to have you. 

Haresh Sapra 00:43
It's great to be here. Thank you. 

Stephen 00:45
Could you please just tell us your position at UChicago and how might you explain that to a lay person? 

Haresh Sapra 00:53
Yes, so I'm a professor of accounting at University of Chicago Booth School of Business. My research is about understanding what I call the real effects of accounting measurements, which means how measurement changes behavior of firms in terms of how they, again, take decisions.

And these decisions matter for the economy because they affect valuations of firms. And at the end of the day, Shareholder welfare. I also teach accounting, obviously, the teaching part of it deals with making students understand that there's a language out there, the language I call the language of business, and that's what accounting is.

So once you understand that language, you understand it's a very interesting, rich language. At the same time, this language can be manipulated and that's why we see earnings management or even fraud. 

Stephen 01:44
I love the phrase you used about it being a language and, I look forward getting into that a little bit more. But we're gonna go further back, much further back into your personal history for a minute.

When you were a kid, what did you imagine you might do with your career? Did you always see yourself researching accounting?

Haresh Sapra 02:02
Oh, absolutely not. So I grew up on an island. I grew up on the island of Mauritius, which as you may know, is a tiny dot in the Indian ocean. I had no idea I was going to even leave the island.

I had no clue. There was, you know, there was such, you know, growing up, I was so naive. I grew up basically in a family of four, four of the siblings, I would say lower middle class. For me, it was just getting out of high school and that's it being on the island and being on the beach, uh, drinking coconut juice andchilling.

And I wanted to be, I don't know, a fisherman or, you know, a barber. As you can see, you know, it's kind of ironic. I would like to be a barber. I don't have any hair right now, but I was fascinated by very simple things in life and because that's all I knew, right? Being on the island 

Stephen 02:56
For the record. I mean, I think that you could still be a barber. You know, it's not, it's not about your own hair, right? 

Haresh Sapra 03:00
That's a very good point. That's right. That's right. I could do that. Yeah. Maybe, maybe I still have plenty of time, so maybe that would be my next gig. After being a professor of accounting. 

Stephen 03:11
Looking forward to that next chapter. Can you tell me just about the, the journey kind of in between then and now?

I mean, you said it was just about getting out of high school. Like, what led you to pursue college? And yeah, how did that all unfold? 

Haresh Sapra 03:25
Yeah, it's quite interesting. I finished high school and we didn't have enough money for me to even travel overseas. I did very well in high school though. However, I didn't have, no, I knew I didn't have a chance to go overseas given that my parents were struggling growing up.

So my goal was very simple at that time to get a job. After high school, I worked in a sugar factory. So Mauritius at that time, definitely the main industry was sugarcane. So I got a job at a sugarcane factory. I was an assistant chemist. I love physics and chemistry and science in high school, I did very well.

I had fantastic teachers. So if it was natural for me to do, to do science and I got this job that was paying me very well at that time, I would say I was like 18, uh, they were paying me 5,000 rupees a month, which at that time was like $300 a month, which was amazing for a high school student. So the job was great.

I love what I was doing. Essentially, they were bringing sugar samples from the factory. And I was testing the acidity EPA, you know, the viscosity, the density. And reporting that daily and then I had meetings with, you know, the essentially lab, the factory people, giving them guidance about various things.

So I was enjoying life. I was doing what I love to do. So at some point I went to my mom after working for a year and a half and I told her, you know what, mom, this is it for me. I'm going to continue working at the sugar factory and life is good because they told me they'll give me a car even. I'm like, wow.

I'm, you know, it's self made man and my mom like, you're an idiot. What are you doing? You know, you need to get out of here, go and make something out of yourself. So my, yeah, to give you some context, my brother was studying in Canada at that time, and, uh, so my mom told me, your brother is studying, imagine someday down the road, you know, you'll be here stuck on the island and the guy would be, you know, doing very well.

So I think you need to at least, following the footsteps of your brother. She's the one actually who essentially pushed me out of the island and said, go, go, go study, go get a college degree. And then I applied for college in the U S I had no clue, to be honest. I applied randomly to five or six schools, universities here.

And the first university that reached out to me was University of Houston in Houston, Texas, obviously. And then again, I had no idea where Houston was. So naive. And they gave me a scholarship based on my high school, uh, you know, grades. So I went to Houston. I basically flew from Mauritius to Houston, and I was almost 22 at that time.

So I started college where most people were finishing college. I started college in the US at the age of 22, unprepared. No idea about the how humid it was, how big it was, and again, my English was very poor at that time because, you know, I grew up, you know, speaking French and taking classes in French in high school because it used to be I went to a French high school with.

So I had to learn English later in life. There's a school of restaurant, hotel and restaurant management at U of H, University of Houston. And I walked in there, I say, I would like to work as a waiter. They're like, we don't have a job as a waiter. You know, there's a job as a bus boy. Would you do that? And I was like, I had no idea what a bus boy is. 

Is this a boy driving a bus? I'm like, what is this? Like, no, no, no, no, no. Come on, follow me. So he took me, he showed me, here's a dirty table. Okay. You have to remove all the dishes, take everything on a tray and, which was not easy. I'm like, okay, how much would you pay me? He's like, oh, I'll give you $4 an hour.

I was like, wow, that's amazing. And you get food, you get free lunch. I started working at that hotel while I was working on my college degree. And, you know, talking about how I got into accounting was completely by fluke. Also, I love science. And I thought that to get a job, I should do something that, you know, at that time was in demand, which is computer science.

So I was studying computer science and I had to take one business elective in the business school. And so I decided to take accounting and it seemed very natural to me. It was like, made a lot of sense, a bunch of rules and there was a structure to it. I'm like, okay, that makes sense. So I took accounting.

I did extremely well. I think I topped the class and the professor came to me, he's like, what are you doing? I'm like, computer science. He's like, no, no, no, you won't get paid with that in the US. Accounting, you can get a job with big six at that time, the big six accounting firms. You should think about that.

So I switched, I switched my major. And yeah, I did very well. I essentially got my college degree, you know, at the time I was almost 27, 26, 27, very late. This is how accounting started for me. I was like, I became a CPA now. I did very well in the CPA exam and I applied for a job as an auditor, but I didn't last very long.

I essentially was fired probably. Oh, well, I was told to let go. I wasn't fired. I think I was told you should probably leave the job. You're not going to be good at this because I was questioning everything. I was essentially, you know, doing over there. Right? Auditing is an interesting job because you're supposed to go there and verify the accounts of your clients.

But for me, it was like, no, you should just go there and not tell you the clients what you're going to check. Surprise them. Because auditing is all about shock and surprise, because if you tell them what you're going to check, they'll be ready for you. And they'll always pass, right? So for me, it was like, no, you should go in there and do some audit procedures that they don't expect.

But, you know, of course I was just a. Very junior guy on the team. And they're like, who are you? So I got in trouble a few times, funny. It's like, I don't think you should be doing this. You should look for a different job. And so then I was completely disillusioned. I'm like, I did all this to become a CPA and my goal was to work for an accounting firm. What do I do now? 

And this is where I got the advice. I went back to one of my professors of economics, actually, University of Houston. He told me, you know what, you probably should think about getting your PhD in accounting. Okay. And we're like, why would I do that?

I know everything about accounting. He's like, no, no, no, no, no. There's a whole world out there of accounting research. So you should really think about getting a PhD in accounting. Tell me there are two places you would like to go to. One of them is University of Chicago. The other one is University of Minnesota.

So I applied to those two schools and I got rejected from the University of Chicago because they told me, hey, your GMAT score is not very high. It's not even our MBA students have higher GMAT scores than that. So I went to the University of Minnesota and that's where I got my PhD, which turned out to be amazing because I had an amazing mentor over there who essentially, yeah, really taught me many things.

One of them was how to do research, how to approach research and how to think about interesting questions to work on that matter of policy. And the irony, of course, is I wanted to come to the University of Chicago, become a professor, and that's the same place that had rejected me. And I did. I joined the University of Chicago as an assistant professor in the year 2000, and here we are 24 years later.

Stephen 11:23
Oh, wow. Yeah, so UChicago, they figured it out eventually. 

Haresh Sapra 11:28
They did. 

Stephen 11:29
Before too long, you mentioned, you know, having an important mentor and, and really learning how to ask interesting questions when you were in graduate school, what were some of the early things like about that experience that, you know, hooked you, I guess, and convinced you that this was actually how you wanted to spend your career?

Haresh Sapra 11:48
My advisor essentially would meet with me on Saturdays. And then first he would tell me to go and read some research papers that, you know, dealt with accounting issues, regulation, regulatory issues or disclosure issues. And I would go on the board and present these papers to him. And basically then we would step back, and the way he would approach this problem is he would say, well, why does, why, what is the question?

Why does it matter for companies out there? And what are regulators saying? So let's look at what are the trade offs. Whenever you look at a problem, whenever you look at a problem, you should look at it from a very, you know, fundamental perspective, which is think about why does this issue matter to firms, to regulators, to shareholders, to investors out there, and also start any research with a deep question, right?

Because there's always a tendency for researchers to say, oh, you know what? I have the data. Oh, you know, there's a debate out there. Let me try to sit down and write a model about it. I, that's fine. But I think the way he essentially taught me to approach research was always take a debate, a public policy debate out there and look at what they're debating and see, first of all, that makes sense.

Then try to sit down essentially and write a model about that. So, I mean, I mean, I'm an accounting theorist, which means that I'm trained as an economist and applied economist, and I don't use the data in my research. I use economic models. So I have, I use equations, a lot of equations in my model.

And in these models, what I do is I look at different agents, like a regulator might have an objective of making sure that the regulation has its intended kind, you know, purpose while firms, this regulation might affect firms in a certain way. So, firms objective might be different from that of regulators and then you might have investors out there.

So I bring all these parties into an economic model and each one of them is doing the best that they can to optimizing given the information. And then I study what happens when you have this regulation, right? How does that change their behavior? And does, do firms make better decisions as a result of this regulation or not?

That's the approach essentially work on important questions, fundamental questions, but always start with the questions, right? Then go and find the model that would answer that question versus saying that here's a model, let's try to fit it in this question. And because of that, the work is challenging, but interesting, right?

So every paper of mine, in a way, I'm not taking the same models I've worked in other papers. I have to sit down and think about what model do I have to build in a way? Okay. To be able to address this. And many times I fall flat on my face. I can't find it, but that's okay. It's a journey. Then you keep trying until eventually you're like, wait a minute, here it is. That was one of the things I learned from my mentor. 

The other one is to be a good advisor, right? You have to spend time with, he was very unselfish. He would meet with me on Saturdays. and spent time with me throughout my PhD career, was very unselfish, wanted to help because he felt that in a way felt like if he does that to me, I would do that now with my PhD students.

And I feel that way also now that, you know, what our job as professors is not just to teach and do our own research, but it's really to help the younger generation, approach research and help them so that they go out and help others. And it's like a paid forward, so to speak.

Then the job is very rewarding because you can see your PhD students doing very well. Or even my MBA students, you know, if you give them the right mentorship, help them, you can see that it makes a huge difference in their lives. It's not transactional anymore. You have an amazing relationship with them and they also stay connected with you.

That's what makes the job fun at the end of the day. It's like helping others, learning from them and also feeling that you never know it. You're learning all the time. 

Stephen 16:13
Well, yeah, actually our, our typical final question is, what do you find the most fulfilling about what you do? But, I don't know, maybe you just answered that question.

Haresh Sapra 16:21
Yeah, it's, I think it's this ability, especially, this is probably also being at the University of Chicago, what makes the place in my mind special. It's a place that allows you to, you know, essentially be a student. Right? That's one way to think about it all your life. Right? Be a student. Experiment. Learn. Better yourself. Right? In a way, the whole place is structured in a way that you are as good as your last paper. So keep pushing, keep working, and that's what, for me, that's what keeps me going. Keeps me, you know, because it's never boring. You always meet someone. Who, from whom you learn something new.

And there's always something I'd say, almost like I feel even though I've been doing this for 24 years, still the tip of the iceberg when it comes to learning and writing cooler papers, more important papers. Still the tip of the iceberg. There's so much that I don't know. 

Stephen 17:22
So you would, you would sign up for another 24 years of this, it sounds like.

Haresh Sapra 17:27
Remember, I have the barber, right, stint that you talked about. So it's a trade off between continuing this and becoming a barber. 

Stephen 17:35
Hmm. Oh, no. Maybe we can take a gap year. 

Haresh Sapra 17:37
Yeah. Yeah. Let's see. Let's see. Yeah. So far, yes. So far, I think I want to keep going. 

Stephen 17:44
Well, what questions are you interested in and excited about right now? Like from a research perspective at the moment. 

Haresh Sapra 17:52
So a couple of things I'm working on right now, and one of them is on climate, climate risks, climate change is huge in my mind. It's, you know, it's one of the, you know, biggest, I think gravest, uh, issues that we face as, you know, humanity faces. And what account, what, what, what can accountants do about that?

You may ask, this is science. And, uh, well, I think it's huge given back to what I had mentioned to you earlier. Accounting is all about measurement and we need to measure climate risk in order to be able to control it, to discipline firms. And here, that's my research. My research is about current research is about firms, uh, in general, all over the world.

The regulators are mandating firms to disclose their carbon emissions. In the financial statements and these numbers would be audited and disclosed, just like, you know, you're disclosing information about performance, cash flows or earnings. So my research right now is about what are the economic trade offs or cost and benefits of mandating firms to do that.

In particular, what are the cost and benefits in a world in which there's disparity in climate regulation, right? You know, some jurisdictions that has the European Union. are far ahead of the US, uh, in terms of asking, you know, mandating these emissions. In other words, they are asking firms to disclose not only their own direct emissions, but also those of their suppliers, uh, which could be, you know, in a foreign country.

It could be, you know, you could be a located in France, but your supplier is in Vietnam. So the French firm not only has to disclose their own emissions, but also measure it and report it, but they also have to measure and report. emissions of their suppliers in Vietnam due to them in France, right? Is your suppliers producing an input for you?

So that's, that's the essentially where the EU has gone. Very comprehensive disclosure in the United States. Interestingly, we are behind the, you know, there's been a lot of lobbying and pushback on this where regulators finally caved in and said, okay, we've only going to ask firms to disclose their direct emissions, the US firms.

Not those of your supplier. And the vast, you know, a large percentage of their emissions comes from their suppliers, which means that's not gonna get, you know, reported and disclosed. Right. Which I think is not the right way to go. So, yeah. So my research comes in and say, what are the consequences of doing that?

Right? And you can imagine the consequences would be that you would outsource, you know, to your suppliers, to basically pollute And you look good here in the us. So are we really approaching this problem from the right, from the right way? So I don't think so. Right. So that's, that's one problem I am working on currently.

The other one is essentially looking at banks. So I'm very interested in banking because bank and accounting go hand in hand because what banks do is, uh, we monitor banks through by setting capital requirements. You need to have enough capital, meaning equity on your balance sheet, not too much debt. And that equity is measured using accounting rules, again, measurement rules, but surprisingly, you know, these, the banking regulators have essentially not given accounting too much attention.

In other words, some assets are not back to market. on the balance sheet of the bank where so, so that when their market values of the securities drop, they're not recognized because of accounting rules. But banking regulators know that they should be using these losses to, you know, to calculate regulatory capital, but somehow they are not doing that.

So the question is, what are the consequences of bank regulators Ignoring these mock to market losses and Silicon Valley Bank is an example of that. Very quickly, interest rates went up, the market value of their securities dropped, but because of accounting rules, they did not write them down. They were sitting on unrealized losses.

Had these regulators acted on these unrealized losses, they would have intervened sooner, you could argue. They didn't. Why is that? Right? Is it because the accounting rules did not allow banks to recognize them, these losses on their, you know, profit loss statement, perhaps? So again, so that's an area again, I feel is super important because it has, you know, consequences for the economy.

Stephen 22:28
That's very relevant. I mean, it's very interesting to hear, like, the direct impact, direct relevance that, that your work has we usually ask people if they've traveled for research and, and like, you know, what kind of world travel they might've done in graduate school or afterwards.

But, am I correct in saying that you recently returned from Hong Kong where you were over there for the winter quarter, right? 

Haresh Sapra 22:50
That's right. Yeah, that was amazing. So I went to Hong Kong in early January this year, and I spent my winter quarter in Hong Kong as a faculty in residence on the Hong Kong campus.

It was amazing experience for me because not only did I get to interact with the stakeholders of the school there, the alums or the business community, but of course the staff in Hong Kong. I teach in the executive MBA program in Asia and in London. So I was also doing my teaching over there in, in Hong Kong.

I hadn't been to Hong Kong since 2019 because of, you know, COVID crisis. So going back there again, after four years, almost four and a half years, and interacting with the stakeholders of the school was very useful, so I learned a lot. And we have an amazing and beautiful campus in Hong Kong, which is in my mind, underutilized as a university.

So my goal is coming back from doing this residency in Hong Kong. My goal is to make sure that we as a university find ways to, you know, better use that facility, not just the business school, but more importantly, the University of Chicago, because it's a lovely facility. And I think you know, essentially we could be doing other things over there.

Stephen 24:11
We'll get the word out starting with the show we're nearly out of time, but I just wanted to wrap up with one last question, which is, uh, what advice would you give to someone who was, you know, considering uh, following in your footsteps? 

Haresh Sapra 24:28
That's a great question. I mean, given my journey, I would say, just keep an open mind. You know, being on the island of Mauritius, I never thought I'd be doing what I'm doing. And, so keep an open mind, try different things. I think we human beings, we very early on in life, I think, especially nowadays, when I talk to parents, they already know or very young people know what they want to do.

And that's, to me, that's, we're not experimenting enough. I think it's very important to experiment. Because I think we are meant to do whatever we want to do in life. I mean, look at me, right? I, I had no idea I'd be doing what I'm doing today, being a professor at the University of Chicago. That's like, sounds crazy to me.

But the reason I'm here is because I allowed myself to try things. I listened to the right people also. So be a good listener, talk to people don't, you know, early on in life when you're in high school or whatever set, you know, be set in your ways. I want to be a doctor. I want to be an engineer. I want to be an entrepreneur.

Be willing to change. I think change is very, very good. Right? I, again, I don't feel I just fell into this. Right? So experiment. And learn from that and you can't fail to experiment. Worst case is you try something new. 

Stephen 25:53
Even, even if you really like the sugar factory, you can see yourself there for the rest of your life. You got to get out there, experiment.

Haresh Sapra 26:00
Exactly, exactly. 

Stephen 26:02
Thank you, Professor Haresh Sapra, for your time today. And course takers, if you enjoyed today's interview, please check out the other ones. Leave us a comment, subscribe, follow, and share this episode with your friends and family. You can find out more about the University of Chicago through uchicago.edu, or the university's campus in Hong Kong through uchicago.hk. Stay tuned for more, and thanks for listening.