April 2007

Ivo Welch
(Ivo Icio Alexander Welch)

Degrees

Appointments

Research

Major Research Publications

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1. Welch, Ivo. "Seasoned Offerings, Imitation Costs, and the Underpricing of Initial Public Offerings." The Journal of Finance 44-2, June 1989, 421-449.
   First to argue that subsequent offerings and "leaving a good taste in investors' mouths" are a reason for IPO underpricing. First to offer some evidence of large SEO after-market issuing activity by IPO issuers.
2. Welch, Ivo. "An Empirical Analysis of Models of Contract Choice in Initial Public Offerings." Journal of Financial and Quantitative Analysis 26-4, December 1991, 497-518.
   An early test of Benveniste and Spindt (1989). Outdated.
3. Welch, Ivo. "Sequential Sales, Learning, and Cascades." The Journal of Finance 47-2, June 1992, 695-732.
   Shows how to price when buyers cascade on one-another. Probably the first "informational cascades" paper (preceding Banerjee and BHW), but not necessarily the best. Still, winner of a Smith-Breeden Distinguished Paper Award. (For typos, see cascades-typos.txt.)
4. Bikhchandani, Sushil, David Hirshleifer, and Ivo Welch. "A Theory of Fads, Fashion, Custom, and Cultural Change as Informational Cascades." The Journal of Political Economy 100-5, October 1992, 992-1026.
   Clearly my most influential and best paper. Recognized and developed the importance and ubiquity of informational cascades in a general context. (Featured, e.g., in The Economist, Feb 19, 1994, p.81; Business-Week, Feb 13, 1995, p.84; Fortune, Oct 14, 1996, p49.) See also the informational cascades webpage.
5. Jegadeesh, Narasimhan, Mark Weinstein, and Ivo Welch. "IPO Signaling and Subsequent Equity Offerings: An Empirical Investigation." Journal of Financial Economics 34-2, October 1993, 153-176.
   The first formal test of the relation between IPO underpricing and after-market issuing activity. Introduces a "market feedback" hypothesis. Finds that stock value appreciation matters, not just IPO underpricing.
6. Warga, Arthur, and Ivo Welch. "Bondholder Losses in Leveraged Buyouts." The Review of Financial Studies 6-4, Winter 1993, 959-982.
   First to reliably document bondholder wealth losses among LBOs and the importance of data sources.
7. Bhagat, Sanjay, and Ivo Welch. " Corporate R&D Investments: International Comparisons." Joint Symposium by The Journal of Labor Economics and The Journal of Accounting and Economics 19-2/3, 1995, 443-470.
   An empirical study.
8. Cornell, Brad, and Ivo Welch. "Culture, Information and Screening Discrimination." The Journal of Political Economy 104-3, June 1996, 542-571.
   Combines information filtering with a tournament situation to show that individual hiring decisions can disproportionately tend towards an employer's own background.
9. Welch, Ivo. "Equity Offerings Following the IPO: Theory and Evidence." Journal of Corporate Finance 2, 1996, 227-259.
   Adds endogenous SEO timing to Welch (1989). First to offer a structural (rather than just intuitive) empirical test of an IPO underpricing model.
10. Beatty, Randolph, and Ivo Welch. "Legal Liability and Issuer Expenses in Initial Public Offerings." The Journal of Law and Economics 39-2, Oct 1996, 545-603.
    Describes compensation for and influence of IPO experts, especially those of the legal advisors. Also finds that the well-known Carter-Manaster relation between IPO underpricing and underwriter quality is unstable (reverses after the Carter-Manaster period).
11. Welch, Ivo. "Why is Bank Debt Senior? A Theory of Priority Based on Influence Costs." The Review of Financial Studies 10-4, Winter 1997, 1203-1236.
    First to argue that (minimizing) potential litigation lobbying expenses in bankruptcy can drive ex-ante capital structure decisions. Sadly, this is the paper whose lack of impact has most disappointed me. I continue to believe that reducing ex-post rent-seeking is an important and widely neglected determinant of capital structure.
12. Bikhchandani, Sushil, David Hirshleifer, and Ivo Welch. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades." Journal of Economic Perspectives 12-3, Summer 1998, 151-170.
    An update and summary of informational cascades. See also the informational cascades webpage.
13. Teoh, Siew-Hong, Ivo Welch, and T.J. Wong. "Earnings Management and The Post-Issue Underperformance in Seasoned Equity Offerings." Journal of Financial Economics 50-1, Oct 1998, 63-99.
    Shows that SEO issuers who tend to be aggressive in their pre-IPO the biggest post-SEO underperformers. Introduces a Fama-MacBeth type methodology to post-event performance measurement.
14. Teoh, Siew-Hong, Ivo Welch, and T.J. Wong. " Earnings Management and The Long-Run Market Performance of Initial Public Offerings." The Journal of Finance 53-6, Dec 1998, 1935-1974.
    Shows that IPO issuers tend to be aggressive in their pre-IPO earnings statements, and that the most aggressive earnings overstaters are the worst post-IPO performers.
15. Teoh, Siew-Hong, Ivo Welch, and Paul Wazzan. "The Effect of Socially Activist Investment Policies on the Financial Markets: Evidence from the South African Boycott." Journal of Business 72-1, Jan 1999, 35-90.
    Finds no evidence of economic effects from sanctions against South Africa. Winner of the 1999 Moskowitz Prize for the best paper on socially responsible investing.
16. Bernardo, Antonio, Eric Talley, and Ivo Welch. "A Theory of Legal Presumptions." The Journal of Law, Economics, & Organization 16-1, April 2000, 1-49.
    First to model legal presumptions (e.g., the burden of proof) as a tradeoff between reducing potential future litigation costs and encouraging effort by an agent.
17. Welch, Ivo and Wessels, David. "The Cross-sectional Determinants of Corporate Capital Expenditures: A Multi-National Comparison." The Schmalenbach Business Review (Zeitschrift fuer Betriebswirtschaftslehre) 52, April 2000, 103-136.
    Finds that the U.S. is not so different from other countries in having high stock returns elicit active investment.
18. Welch, Ivo. "Views of Financial Economists On The Equity Premium And Other Issues." The Journal of Business 73-4, October 2000, 501-537.
    First survey of finance professors. (Finds an equity premium consensus assessment of about 6% per annum.) Note the update in The Equity Premium Consensus Forecast Revisited.
19. Allen, Franklin; Bernardo, Antonio; and Ivo Welch. " A Theory of Dividends Based on Tax Clienteles." The Journal of Finance 55-6, December 2000, 2499-2536.
    Argues that the presence of both dividends and dividend smoothing can be caused by the need of firms to attract institutional investor clienteles. (Abstract.)
20. Welch, Ivo. "Herding Among Security Analysts." Journal of Financial Economics 58-3, December 2000, 369-396.
    Develops an econometric methodology to estimate imitation when choices are discrete. Applies it to security analysts' buy and sell recommendations. Won the JFE Fama/DFA 2nd Prize for Capital Markets and Asset Pricing. (welch2000jfe provides free sample code to anyone wishing to estimate herding for discrete choices.)
21. Bernardo, Antonio, and Ivo Welch. "On the Evolution of Overconfidence and Entrepreneurs." Journal of Economics and Management Strategy 10-3, Fall 2001, 301-330.
    First to introduce evolutionary group selection arguments into an application paper in economics. Explains the persistence of documentably irrational behavior. This is an unusual piece, and, I hope, well worth reading.
22. Hirshleifer, David and Ivo Welch. An Economic Approach to the Psychology of Change: Amnesia, Inertia, and Impulsiveness. Journal of Economics and Management Strategy 11-3, Fall 2002, 379-421.
    Explains inertia as the outcome of partial memory loss.
23. Ritter, Jay and Ivo Welch. "A Review of IPO Activity, Pricing and Allocations." Journal of Finance 57-4, August 2002, 1795-1828.
    A survey of recent IPO activity, both in the market and by academics. (Abstract)
24. Goyal, Amit, and Ivo Welch. "Predicting the Equity Premium With Dividend Ratios." Management Science 49-5, May 2003, 639-654.
    Introduces a graphical diagnostic which shows convincingly that dividend ratio regressions have never managed to predict equity premia out of sample---despite popular folklore. Note: the data is available here. please do not expect support for the data. you can use it, but you cannot ask us for explanations. (Abstract)
25. Bernardo, Antonio, and Ivo Welch. Liquidity and Financial Market Runs. Quarterly Journal of Economics 119-1, February 2004, 135-158. (Abstract).
    Shows how imperfect sequence in execution can cause liquidity runs, in which every investor tries to take their money out of the stock market first. Unlike Diamond-Dybvig, the argument works in varying price markets.
26. Ivo Welch. Capital Structure and Stock Returns. Journal of Political Economy 112-1, February 2004, 106-131. (Abstract.)
    Decomposes debt ratio dynamics into stock return caused dynamics (40%) and issuing activity caused dynamics (60%). Other (commonly used) variables have no explanatory power incremental to stock returns, leaving issuing activity dynamics a mystery.
    (Abstract. A poor first draft was called "Columbus' Egg: Stock Returns are the Main Determinant of Capital Structure Dynamics".) Missing Explanation: The dependent variable in Table 5 has been multiplied by 100 (i.e., is quoted in percent).
27. Bris, Arturo, Alan Schwartz and Ivo Welch. "Who should pay for bankruptcy costs?" Journal of Legal Studies, 34-2, June 2005, 295-342 (lead article).
    Shows that it would make more sense to allow bankrupt firms to decide on bankruptcy experts' reimbursements, instead of leaving this reimbursement decision to courts and/or a mechanistic rules.
28. Bris, Arturo and Ivo Welch. The Optimal Concentration of Creditors. The Journal of Finance, 60-5, October 2005, 2193-2212.
    Argues that small dispersed creditors are not good at collection, which in turn can induce strategic choice of creditor concentration.
29. Bris, Arturo, Ivo Welch, and Ning Zhu. The Costs of Bankruptcy The Journal of Finance 61-3, June 2006, 1253-1303.
    Explores a fairly complete dataset of bankruptcies in NY and AZ. Finds that Chapter 7 is not better than Chapter 11---and warns about oversimplified estimates of bankruptcy costs.
30. Jonathan Ingersoll, Matthew Spiegel, William Goetzmann, and Ivo Welch. Portfolio Performance Manipulation and Manipulation-proof Performance Measures Review of Financial Studies 20-5, September 2007, 1503-1546.
    Shows how performance measures, such as the Sharpe Ratio, can easily be gamed, e.g., with derivatives. A utility-based performance measure does not suffer from this obvious flaw.

Ongoing Research

Current working papers and ongoing research are described at (and linked from) http://welch.econ.brown.edu/academics/.

Some Other Publications

1. Palgrave Dictionary entry on Informational Cascades (joint with [and mostly written by] Sushil Bikhchandani and David Hirshleifer), 2006.
2. Beatty, Randolph, Susan Riffe, and Ivo Welch. "How Firms Make Capital Expenditure Decisions: Financial Signals, Internal Cash Flows, Income Taxes, and the Tax Reform Act of 1986." Review of Quantitative Finance and Accounting, 9, 1997, 227-250.
   Shows that firms accelerated capital expenditures before the TRA of 1986 eliminated special depreciation.
3. Welch, Ivo. G-III.
   A teaching case, available at welch.econ.brown.edu/giii/. I believe this to be the best teaching case on either IPOs or earnings management out there.
4. Welch, Ivo. The Top Achievements, Challenges, and Failures of Finance.
   An intentionally provocative piece.
5. Welch, Ivo. "A Primer on Capital Structure." Finanzmarkt und Portfolio Management, 1995-2, 232-249.
   Obsolete. Instead, please download the relevant chapters from my book.
6. Devenow, Andrea, and Welch, Ivo. "Rational Herding in Financial Economics," European Economic Review.
   Obsolete. A survey of the literature as of 1994.
7. Welch, Ivo. "Initial Public Offerings," Blackwell Encyclopedia 1996.
   Finds that the loss of the investment tax credit in the Tax Reform Act of 1986 induced high-tax firms to accelerate capital expenditures into 1986.
8. Welch, Ivo. (with support from Peter Tufano):
   Research Roundtable Discussion: The Market Risk Premium, published on ssrn, June 30, 2000.

Teaching and Professional Service

Textbook

A First Course in Finance, available from welch.econ.brown.edu. Forthcoming, Addison-Wesley-Pearson.

Teaching

Various classes over the years, including introduction to finance (core), intermediate finance, advanced corporate finance, entrepreneurial finance, statistics, and Ph.D. level courses. 1994 Teaching Award. Various Executive Teaching.

Seminars and Presentations

UCLA Finance and Economics Departments (Winter 1989, Spring 1990, 1993, 1994). Harvard University, Massachusetts Institute of Technology, University of Michigan, University of California/Berkeley, Ohio-State University, Columbia University, London Business School (January-March 1989). University of Illinois/Urbana-Champaign (November 1990). Insead (December 1990). University of Utah (December 1991). Hebrew University (April 1992). Northwestern University (May 1992). University of California/Berkeley, Stanford University, Cornell University (April 1993). Carnegie Mellon University, University of Maryland (May 1993). Massachusetts Institute of Technology, New York University, Columbia University (February-March 1994). The University of Chicago (June 1994). Pennsylvania State University, Southern Methodist University, Duke University, University of Michigan (April 1995). London Business School, University of Southampton (October 1995). University of Rotterdam, University of Amsterdam, University of Frankfurt (November 1995). London School of Economics, University of St. Gallen, University of Lausanne, University of Vienna (December 1995). University of Southern California/Economics (March 1996). University of California/Berkeley (April 1996). Massachusetts Institute of Technology (November 1996). University of Minnesota (May 1997). Harvard Business School (Nov 1997). University of Florida (Nov 1997). Northwestern University (April 1998). UC/Davis (May 1998). Columbia (Oct 1998). University of Arizona (March 1999). Wharton, New York University, Atlanta, Yale University (April 1999). University of Chicago (May 1999). Harvard (June 1999). USC (Sept 1999). Princeton (Sept 1999). Hitotsubashi University (May 2001). MPT Forum (May 2001). Yale (January 2002). Rice University (February 2002). M.I.T., Boston College (March 2002). University of Illinois/Urbana-Champaign, University of Chicago, NBER (April 2002). Rutgers, University of Bonn (May 2002). EFMA London (June 2002). EFA Berlin (August 2002). Hebrew University (January 2003). Texas/Austin (February 2003). Baruch (April 2003). Dartmouth (May 2003). Notre Dame (May 2003). USC LEO (December 2003). NYU, Columbia, Brown Econ (March 2004). Maryland, Rochester, Michigan (April 2004). McGill (2005). Boston College, University of Toronto, York University (May 2007).

Numerous conference participations, presentations, discussions, session chairings. German Finance Association, Keynote Address (Tuebingen, October 2004).

Others

Managing Editor: German Economic Review, 2005-. Associate Editor: Schmalenbach Business Review (ZFBF), 2001-2004. Journal of Financial and Quantitative Analysis, 1997-. Journal of Finance, 1997-2000. Review of Financial Studies, 1996-1999. Frequent referee to many major econonomics and finance journals.

Research Associate, NBER Corporate Finance group.

Numerous local business school service appointments and committees. Program Coordinator, Finance for Nonfinancial Executives, 1997-1998 Some minor grants.

Cite count on webofscience: > 800 (not updated; more accuracy not useful).

Occasional Consulting Engagements, most recently: Expert Witness for Massachusetts Insurance Commissioner, 2003 (Peter Leight); AeroGlobal vs. Cirrus, 2003 (Tim Russell); Marc Weisberg vs. U.S. DOJ, 2005 (Tim Neff); Beacon Mututal Value Analysis, 2005 (Peter Durfee). Board Member of Semper Macro Hedge Fund (Christian Siva-Jotha, Stefan Pollman).

Background: Born in Schweinfurt, Germany. Native tongue: German. Solid background in computer-related technical and business aspects. Various press coverage both of work (e.g., in The Economist and Business Week) and of person (e.g., as in CFO Magazine, February 2001 [Bright Minds, Big Theories]). Was regularly ranked among top-10 economists under 40 years of age by cite count. Occasionally ranked among top-100 economists in cite counts (e.g., by Thomson ISI 2002 or Thomson ISI 2007).

This document: http://welch.econ.brown.edu/vitae.html.
Email Address: ivo_welch@brown.edu.

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