When Leon Carroll Marshall, the fourth dean of Chicago Booth, established the first business PhD program in the United States in 1920, he aimed to set a higher standard for business education. Marshall, a professor of political economy who had become dean in 1909, had carefully studied what most schools were offering, and he wasn’t impressed. Business students mainly performed rote memorization. Booth, founded in 1898, was more than a decade old when Marshall took over. It had grown from a handful of courses collected from throughout the university to a formally structured college with its own faculty. Students began with a general education in the social sciences, and then specialized in banking, transportation, trade and industry, or journalism. But the business school had little support overall from university administrators, and the dean who preceded Marshall suggested it either be improved or eliminated. Marshall wanted to create something better.
“Business is, after all, a pecuniarily organized scheme of gratifying human wants, and, properly understood, falls little short of being as broad, as inclusive, as life itself in its motives, aspirations, and social obligations,” he wrote in Business Administration, the 900-page tome he published in 1921. “Training for the task of the business administrator must have breadth and depth comparable with those of the task.”
With those lofty aspirations, Marshall reorganized the curriculum to prepare students for professional leadership. Then, he began shaping a PhD program that has trained Nobel laureates, educated leading researchers around the world, and tackled fundamental questions in economics, accounting, marketing, behavioral science, and more. The commitment by faculty and students to intellectual rigor, disciplined training, and constant curiosity have set the bar for doctoral studies in business education.
The first two Booth PhD recipients helped to spread Marshall’s mission by advancing knowledge and bringing his principles to other schools. While at Booth, Albert Clare Hodge, PhD ’22, cowrote the textbook Principles of Accounting with James O. McKinsey, PhB ’17, AM, ’19, who later founded the consulting firm McKinsey & Company. Waldo F. Mitchell, PhD ’22, taught at a number of Midwestern universities, including the University of Evansville (then Evansville College) in Indiana, where he became head of the newly established department of economics and business administration.
From the beginning, PhD graduates also used what they learned to improve the world around them. The first woman to receive a PhD in business in the United States, Ursula Batchelder Stone, PhD ’29, had a similar passion for sharing her knowledge widely. Batchelder Stone became a lecturer in economics and social sciences at George Williams College in the Hyde Park neighborhood of Chicago, served as Midwest director of the Workers’ Education Bureau of America, and started a communications consulting firm with her friend Rachel Marshall Goetz, the daughter of Leon Carroll Marshall. Together, they broadcast a weekly consumer-education radio program, The Women Speak.
The next few decades were an era of limited resources for the business school, but by the mid-1950s, two administrators were laying the groundwork for the next stage of growth. In 1956 Booth dean W. Allen Wallis and associate dean James H. Lorie, PhD ’47, set out to further define the Booth education. They emphasized teaching fundamental scientific knowledge—not only economics, but also mathematics, statistics, law, and other domains—to equip students to address business problems from many perspectives. Their framework, which became known as The Chicago Approach, helped revive the school’s fortunes. Armed with a new $10 million endowment from chancellor Lawrence Kimpton, Wallis and Lorie developed a 10-year plan for the business school, which helped attract faculty and students.
At the time, Booth MBA and PhD students often took classes together, but under the new strategy, the PhD Program became more sharply separated from the MBA Program. A 1958 memo describes “a conscious and intensive effort to develop special classes at a more advanced level which are limited exclusively to students in the PhD program,” with a goal of building “a certain esprit de corps and a sense of intellectual community among our students.” PhD students were expected to learn a basic discipline, such as economics, behavioral science, or math, and the program specifically prepared them to teach at the college level or to take a research position.
“Merton Miller and his students, Gene Fama being the most well known, basically defined the field of finance for the rest of the world.”
The Chicago Approach was praised at a time when business schools around the United States were reexamining their mission. The Gordon-Howell Report, published in 1959 and funded by the Ford Foundation, criticized most business programs as too vocational, leaving graduates inadequately prepared for creative problem-solving. By contrast, “a few institutions have been experimenting with new curricula designed to provide a more rigorous professional training within the context of a liberal education,” the authors wrote.
“The results achieved to date are highly promising. In such programs, increased emphasis is being placed on the application of the fundamental disciplines of the social and behavioral sciences to the problems of business administration.”
In the next few years Lorie’s research helped to sharpen Booth’s reputation for using data to answer important questions. He received an endowment from Merrill Lynch to build a database of stock prices. “It’s hard to believe, but at the time, when you asked what the rate of return was if you invested in the equity market, people didn’t know how to answer,” said John P. “Jack” Gould, MBA ’63, PhD ’66, dean of the business school from 1983 to 1993.
In 1960 Lorie founded the Center for Research in Security Prices (CRSP), where he and Booth professor Lawrence Fisher, AM ’55, PhD ’56 (Economics), began to analyze common stock returns on the New York Stock Exchange from 1926 to 1960. Their findings, announced in 1963 at the New York Press Club, compiled data totaling two million to three million entries, on magnetic tape that could stretch unspooled for 3.5 miles. By 1965 researchers at 60 universities were using the data files for their own analyses.
The attention that Lorie and Fisher received for their work—and the technology that enabled them to complete it—attracted students to the PhD Program. “The ability to use computers to do theoretical and empirical work was very important,” Gould said. “It happened at Chicago fairly early, and it’s an important characteristic of the way we do things.”
The 1960s and 1970s were an especially fertile era for research in the PhD Program. “Chicago was in an ascendant mode at that time,” said Sam Peltzman, PhD ’65 (Economics), the Ralph and Dorothy Keller Distinguished Service Professor of Economics Emeritus. “It was clearly the best department in the country in economics, and the business school just exploded. Merton Miller and his students, Gene Fama being the most well known, basically defined the field of finance for the rest of the world.”
Miller, who joined the Booth faculty in 1961, had recently published a groundbreaking paper with Franco Modigliani, challenging the traditional view that businesses can reduce their cost of capital by choosing the optimal ratio of debt to equity. The Modigliani-Miller theorem posits that there is no “correct” ratio, so businesses should focus instead on minimizing tax liabilities and maximizing corporate net wealth. Miller received the Nobel Prize in Economic Sciences in 1990.
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Eugene F. Fama, MBA ’64, PhD ’64 , was as eager as his mentor to upend conventional financial wisdom. He wrote his dissertation on what he called the efficient-market hypothesis, published in 1965, in the Journal of Business, as “The Behavior of Stock Market Prices.” In its simplest form, the efficient-market hypothesis states that asset prices reflect all available information. In other words, it is impossible to beat the overall market through expert judgment or timing. Fama, the Robert R. McCormick Distinguished Service Professor of Finance, received the Nobel Prize in Economic Sciences for his hypothesis in 2013. Now a foundational component of financial economics, the theory has been constantly cited, analyzed, debated, and defended in the years since its publication.
“When he was a PhD student, he revolutionized the way we think about markets,” said Pietro Veronesi, the Chicago Board of Trade Professor of Finance and deputy dean for faculty. “The whole idea of what we call market efficiency completely changed the way people think about market prices. That became the benchmark.”
In a speech on the day he was awarded his Nobel, Fama credited the school’s intellectual atmosphere and mentors such as Miller and Harry V. Roberts, AB ’43, MBA ’47, PhD ’55, who helped him shape his ideas.
“Whatever I am owes—at least two-thirds of it, maybe three-quarters, maybe 90 percent—to the University of Chicago,” Fama said. “The interaction that you get from your colleagues is so influential in building your work that you cannot underestimate its impact. . . . I really value the fact that we have many points of view expressed in the school of finance and all the disciplines. Everybody contributes to everybody else’s work. We argue vociferously, but it’s never personal, and that’s a unique atmosphere to be involved in.” In accounting, Ray Ball, MBA ’68, PhD ’72, similarly altered the course of his field. In 1968 Ball and Philip Brown, MBA ’65, PhD ’68, published “An Empirical Evaluation of Accounting Income Numbers” in the Journal of Accounting Research. It changed the understanding of the impact of corporate disclosure, and particularly earnings releases, on stock prices. In 1986 the American Accounting Association gave the paper its first award for seminal contributions in accounting literature. “No other paper has been cited as often or has played so important a role in the development of accounting research during the past thirty years,” it noted.
Other Booth alumni also developed ideas that have become standard references. Myron S. Scholes, MBA ’64, PhD ’70, worked with economists Fischer Black and Robert C. Merton to develop their formula for pricing options, published in 1973, that became known as the Black-Scholes model. Their model paved the way for the enormous modern derivatives market and formed the basis for sophisticated hedging strategies used by investment banks and hedge funds. Scholes and Merton received the Nobel Prize in Economic Sciences in 1997 for their breakthrough.
100 Years of Pioneering Research
Trace the biggest milestones of PhD Program through the decades, from its launch in 1920, to 2020 and beyond.
In his Nobel biography Scholes credited his decision to study at Booth with changing the course of his life. “Intuitively, I knew that if I wanted to grow and achieve my potential, I should attend a school where I could learn from and work with those who were the best and could bring out the best in me,” he wrote.
Another major contribution to finance came from Michael C. Jensen, MBA ’64, PhD ’68, a Harvard emeritus professor who coauthored, with William H. Meckling, the paper “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Jensen and Meckling defined a public corporation as a set of contractual relationships and established a theory of corporate ownership structure. “We seldom fall into the trap of characterizing the wheat or stock market as an individual, but we often make this error by thinking about organizations as if they were persons with motivations and intentions,” they wrote. It has become one of the most widely cited papers in finance since it was published in 1976 in the Journal of Financial Economics.
In the late 1970s growing interest in the emerging field of behavioral economics helped expand the scope of research by Booth faculty and students. Hillel J. Einhorn, then a member of the faculty, founded the Center for Decision Research at Booth in 1977, seeking to apply economics, statistics, and psychology to the study of decision-making. “Any time you deal with interesting, hard problems, it’s a big mistake to say one discipline has some kind of monopoly,” said Colin F. Camerer, MBA ’79, PhD ’81, a professor of behavioral finance and economics at the California Institute of Technology. Camerer began at Booth as a finance student and shifted into the behavioral science program to work with Einhorn and Robin M. Hogarth, PhD ’72. Camerer remembers fierce arguments with other graduate students, which forced him to keep gathering data to defend his position that people make consistent cognitive mistakes. “Surviving in an environment where I was outnumbered was one of the things I learned there,” he said.
PhD students were drawn to an environment that was not only intellectually rigorous but also technologically advanced. When Peter E. Rossi, MBA ’80, PhD ’84, arrived at Booth, almost two decades after the founding of CRSP, most business schools still had limited computing equipment. But at Booth, PhD students had essentially unlimited access to several computers running an updated operating system. “I did very computationally intensive work, and it wouldn’t have been possible at many other business schools,” said Rossi, who brought new statistical methods to marketing and is now a professor of marketing, economics, and statistics at the University of California at Los Angeles.
Rossi credits both the access to computers and his surroundings for keeping his attention on the life of the mind. As he recalls it, the business school’s old building was dark and Gothic. In the economics department, where he sometimes took classes, the offices had decrepit steel filing cabinets filled with junk, and classrooms were lined with slate chalkboards on which students could barely read the writing.
“There’s something to be said for those cold Chicago winters and the gritty pubs around the U—the Pub, Jimmy’s, the Cove—which keep you focused on research,” Rossi said. “Would that be the same in Palo Alto? I don’t know.”
But keeping students motivated on the daunting journey of finishing their dissertations was sometimes a challenge. Back in 1970, professors Harry Roberts and Roman L. Weil, the V. Duane Rath Professor of Accounting Emeritus, sent their students a lengthy memo titled “Starting Research Early.” In it, they wrote: “Many students don’t finish at all; others finish only after years of spasmodic effort and oppressive anxiety. . . . The time to start research is as early in your graduate study as possible—now, for instance.”
By 1995, when Mark E. Zmijewski took over as faculty director of the PhD Program, he found many students still faced the same issues. “Over 40 percent of our students were ABD [all but dissertation], and some of them were in there for quite a long time,” said Zmijewski, now the Charles T. Horngren Professor of Accounting Emeritus. He began sending letters to students who were lagging. Many refocused and finished—including one student who had been out for more than a decade. Zmijewski also pushed for better funding for PhD students, helping them greatly reduce distractions so that they could prioritize their research.
In recent years Booth has emphasized the interdisciplinary nature of The Chicago Approach by forging tighter bonds with the broader University of Chicago community. In 2006 Booth formalized the close relationship between the university’s economics department and Booth’s finance program by establishing the Joint Program in Financial Economics. Students earn a PhD in economics and finance jointly from Booth and from the university’s Division of Social Sciences, and work with advisors from both areas. In 2009 Booth added the Joint Program in Psychology and Business, a collaboration between Booth’s behavioral science program and the university’s psychology department.
When Leon Carroll Marshall created the Booth PhD Program a century ago, he envisioned educating a network of scholars who were comprehensively trained, creative problem solvers. Today, having graduated more than 900 students in economics, finance, accounting, marketing, and behavioral sciences, among other disciplines, the PhD Program represents the breadth and scope that Marshall imagined. Its alumni have revolutionized the way we see the world.
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