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Ulf
Axelson
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Short Biography
Ulf
Axelson joined the London School of Economics in 2009. Since August 2015, he
is Professor in Finance and Private Equity.
Since 2010, he is the inaugural director of the MSc in Finance and
Private Equity program. Dr Axelson was previously an Associate Professor of
Finance at the Stockholm School of Economics, and before that an Assistant
Professor of Finance at the Graduate School of Business of the University of
Chicago. He received his Ph.D. in Financial Economics from Carnegie Mellon
University and holds an MBA from the Stockholm School of Economics. At
the London School of Economics, Pr. Axelson has been teaching applied corporate
finance and private equity courses for masters
students in Finance, Finance and Private Equity, Accounting, and Management. He
has also taught corporate finance courses at the Stockholm School of Economics
and the University of Chicago. Professor Axelson was awarded the “Best
Teacher” award in the MBA program at the Stockholm School of Economics in
2006, and the LSE Teaching Promotion Award in 2015. Back to top
Selected Publications
“Security Design
With Investor Private Information,” Journal of Finance 62:6, December
2007, pp. 2587-2632 (Finalist
for the Brattle Group Prize for the best corporate finance paper published in
the Journal of Finance) Abstract: I study the security design problem of a firm
when investors rather than managers
have private information about the firm. I find that it is often optimal to
issue information-sensitive securities such as equity. The “folklore
proposition of debt” from traditional signaling models only goes through if
the firm can vary the face value of debt with investor demand. When the firm
has several assets, debt backed by a pool of assets is optimal when the
degree of competition among investors is low, while equity backed by
individual assets is optimal when competition is high.
“Liquidity and Manipulation of Executive Compensation Schemes,” with Sandeep Baliga, Review of Financial Studies 2009: 22, pp. 3907-3939 Abstract: Compensation contracts have been criticized for encouraging managers to
manipulate information. This includes bonus schemes that encourage earnings
smoothing, and option packages that allow managers to cash out early when the
firm is overvalued. We show that the intransparency
induced by these contract features is critical for giving long-term
incentives. Lack of transparency makes it harder for the owner to engage in
ex post optimal but ex ante inefficient liquidity provision to the manager.
For the same reason, it is often optimal to “pay for luck” - i.e., tie
long-term compensation to variables that the manager has no influence over,
but may have private information about, such as future profitability of the
whole industry. “Why are Buyouts
Levered? The Financial Structure of Private Equity Firms,” with Per Strömberg and Michael
Weisbach, forthcoming, Journal of Finance 64:4, August 2009, pp. 1549-1582 (Winner
of the Brattle Group Prize for the best corporate finance paper published in
the Journal of Finance) Abstract: Private equity funds are important actors in the
economy, yet there is little analysis explaining their financial structure.
In our model the financial structure minimizes agency conflicts between fund
managers and investors. Relative to financing each deal separately, raising a
fund where the manager receives a fraction of aggregate excess returns
reduces incentives to make bad investments. Efficiency is further improved by
requiring funds to also use deal-by-deal debt financing, which becomes
unavailable in states where internal discipline fails. Private equity
investment becomes highly sensitive to economy-wide availability of credit
and investments in bad states outperform investments in good states. “Borrow Cheap, Buy High? Determinants of Leverage and Pricing in Buyouts” with Tim Jenkinson, Per Strömberg, and Michael Weisbach, Journal of Finance 68:6, December 2013, pp. 2223-2267 (Lead Article, Brattle Group Distinguished Paper Prize 2014)Abstract:
This paper provides an empirical analysis of the financial structure of large
buyouts. We collect detailed information on the financing of 1157 worldwide
private equity deals from 1980 to 2008. Buyout leverage is cross-sectionally unrelated to the leverage of matched public
firms, and is largely driven by factors other than what explains leverage in
public firms. In particular, the economy-wide cost of borrowing is the main
driver of both the quantity and the composition of debt in these buyouts.
Credit conditions also have a strong effect on prices paid in buyouts, even
after controlling for prices of equivalent public market companies. Finally,
the use of high leverage in transactions negatively affects fund performance,
controlling for fund vintage and other relevant characteristics. The results
are consistent with the view that the availability of financing impacts booms
and busts in the private equity market, and that agency problems between
private equity funds and their investors can affect buyout capital
structures. “Wall Street occupations”
with Philip Bond (a
previous version of this paper was circulated under the title “Investment
banking careers”), Journal of Finance 70:5, October 2015, pp. 1949-1996
(Brattle Group Distinguished Paper Prize)
Abstract: Many finance jobs entail the
risk of large losses, together with hard-to-monitor effort. We analyze the
equilibrium consequences of these features in a model with optimal dynamic
contracting. We show that finance jobs feature high compensation, up-or-out
promotion and long work hours, while giving strictly more utility to
employees than other jobs. Moral hazard problems in finance are exacerbated
in booms, even though pay increases. Employees whose talent would be more
valuable elsewhere can be lured into high-paying finance jobs, while the most
talented employees might be unable to land these jobs because they are
"too hard to manage."
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“Informational
Black Holes in Financial Markets” with Igor
Makarov. (forthcoming, Journal of Finance)
Abstract: We study how efficient primary financial markets are in
allocating capital when information about investment opportunities is
dispersed across market participants. Paradoxically, the very fact that
information is valuable for making real investment decisions destroys the
efficiency of the market. To add to the paradox, as the number of market
participants with useful information increases a growing share of them fall
into an “informational black hole,” making markets even less efficient.
Contrary to the predictions of standard theory, social surplus and the
revenues of an entrepreneur seeking financing can be decreasing in the size
of the financial market, the linkage principle of Milgrom
and Weber (1982) may not hold, and collusion among investors may enhance
efficiency. Other Articles
“Banksystemet behöver en börs för
kreditinstrument” Dagens Industri, Friday Oct. 3, 2008
“Regulate providers of debt capital to get to the
problem's root” Financial Times, May 17 2010
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Working Papers
“Sequential Credit Markets”
with Igor Makarov.
“European Venture Capital: Myths and Facts” with Milan Martinovic.
Abstract: We examine the determinants of success in venture
capital transactions using the largest deal-level data set to date, with
special emphasis on comparing European to US transactions. Using survival analysis, we show that for
both regions the probability of exit via initial public offering (IPO) has
gone down significantly over the last decade, while the time to IPO has gone up
– in contrast, the probability of exit via trade sales and the average time
to trade sales do not change much over time. Contrary to perceived wisdom,
there is no difference in the likelihood or profitability of IPOs between
European and US deals from the same vintage year. However, European trade
sales are less likely and less profitable than US trade sales. Venture
success has the same determinants in both Europe and US, with more
experienced entrepreneurs and venture capitalists being associated with higher
success. The fact that repeat or
‘serial’ entrepreneurs are less common in Europe and that European VCs lag US
VCs in terms of experience completely explains any difference in performance
between Europe and the US. Also, contrary to perceived wisdom, we find no
evidence of a stigma of failure for entrepreneurs in Europe. “Alpha and Beta of Buyout Deals: A Jump CAPM for Long-term Illiquid
Investments” with Morten Sorensen and Per Stromberg.
“Bundling, Rationing, and Dispersion Strategies in Private and Common
Value Auctions”
Abstract: I study optimal selling strategies by a multi-product
seller who is confined to using a standard auction format but has leeway in
bundling products and choosing aggregate and individual quantities offered to
buyers. I show how decisions of bundling, rationing, and dispersing the
allocation depend on whether the product is of private or common value, how
high demand is relative to supply, and what auction mechanism the seller
uses. “A Theory of the Evolution of Derivatives Markets”
Abstract:
This paper develops
a theory of the opening and dynamic development of a futures market with
competing exchanges. The optimal contract design involves a trade-off between
the hedging potential of a contract and it’s degree of substitution with
competing contracts. As design costs go down slowly, more exchanges enter,
but if costs go down fast or reach zero, markets consolidate (fewer number of
exchanges). I develop implications for how the hedging potential and
cross-correlation between contracts develop over time. I extend the model to
a case where demand is uncertain before trade has been observed, and perform
comparative statics on the social efficiency of market opening. For markets
with equivalent expected surplus, the propensity of markets to open are
negatively related to the probability of further entry and the ex ante
uncertainty, and positively related to the time lag between innovations. Back to top
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