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Ulf Axelson
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Short Biography
Ulf Axelson joined the Swedish Institute of
Financial Research (SIFR) in 2004. He is an Associate Professor of Finance at
the Stockholm School of Economics. Professor Axelson was previously 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 Stockholm School of Economics, Dr.
Axelson is currently teaching “Applied Corporate Finance” as an
elective in the undergraduate program. He has also been teaching two MBA
courses in corporate finance, “Corporate Finance” and
“Cases in Corporate Finance”, and was awarded the “Best
Teacher” award in 2006. He also teaches corporate finance in the
executive education program at the SSE. Between 1999 and 2004, he was a
faculty member at the University of Chicago GSB, where he taught MBA courses
in corporate finance. Dr.
Axelson is also an independent board member of the Foundation for
Lithuanian-Swedish Relations. 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 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, forthcoming, Review of
Financial Studies
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
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.
Back to top
Other Articles
“Banksystemet
behöver en börs för kreditinstrument” Dagens Industri, Friday Oct. 3, 2008
Back to top
Working Papers
“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 recent buyouts. We
collect detailed information of the financings of 153 large buyouts
(averaging over $1 billion in enterprise value). We document the manner in
which these important transactions are financed. Buyout leverage is
cross-sectionally unrelated to the leverage of matched public firms, and is
largely driven by other factors than what explains leverage in public firms.
In particular, the economy-wide cost of borrowing seems to drive leverage.
Prices paid in buyouts are related to the prices observed for matched firms
in the public market, but are also strongly affected by the economy-wide cost
of borrowing. These results are consistent with a view in which the
availability of financing impacts booms and busts in the private equity
market. “Investment
Banking 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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