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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 the Abraaj Group Professor in Finance and
Private Equity. He is also the
director of the Financial Markets Group (FMG), the main research and outreach
center in finance at the LSE. 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 corporate
finance to MSc Accounting and Finance and MSc Strategy and Economics
students. 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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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
Back to top
Working Papers
“Informational Black Holes in Financial Markets” with Igor Makarov.
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. “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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