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Ulf
Axelson
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Short Biography
Ulf
Axelson joined the London School of Economics in 2009. Since February 2010,
he is the Abraaj Capital Reader in Finance and Private Equity and the
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
(civilekonom) from the Stockholm School of Economics. At
the London School of Economics, Dr. 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. Doctor Axelson was awarded the “Best Teacher”
award in the MBA program at the Stockholm School of Economics in 2006. 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.
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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
“Borrow
Cheap, Buy High? Determinants of Leverage and Pricing in Buyouts”
(a previous version of this paper was circulated under the
title “Leverage and Pricing in Buyouts: An Empirical Analysis”)
with Tim Jenkinson, Per Strömberg, and Michael Weisbach
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. “Investment
Banking (and other high profile) Careers” with Philip Bond
Abstract: We set up a
general equilibrium model of a labor market where moral hazard problems are a
key concern. We show that variation in moral hazard across industries
explains cross-sectional patterns in contract terms, work patterns over time,
and promotion structures. In particular, we explain why very high-profile jobs
such as investment banking pay more and give higher utility to the employee
than other jobs, even though agents employed do not have any skill advantage.
These jobs are also characterized by high firing rates, and inefficiently
long hours spent on mundane tasks early on in the career - the "dog
years". We also show that agents who are unlucky early on in their
careers, either because they do not land a high-profile job or because they
lose a high-profile job, suffer a life-long disadvantage in the labor market
even when there are no skill differences between workers. Finally, we show
why employers may rationally reject more talented job applicants in favor of
less talented ones -- Smart workers may be "over qualified", or
"too hard to manage", because their relatively high outside options
make them respond less to firing incentives. “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. “The Dynamics of
Financial Innovation and the Industrial Organization of Risk-sharing
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
Work in Progress
(coming soon!)
“Optimal
Mechanisms and Security Design in Common Value Auctions”
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