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This article shows that investors financing a portfolio of projects may use the depth of their financial pockets to overcome entrepreneurial incentive problems. Competition for scarce informed capital at the refinancing stage strengthens investors’ bargaining positions. And yet, entrepreneurs’ incentives may be improved, because projects funded by investors with ‘‘shallow pockets’’ must have not only a positive net present value at the refinancing stage, but one that is higher than that of competing portfolio projects. Our article may help understand provisions used in venture capital finance that limit a fund’s initial capital and make it difficult to add more capital once the initial venture capital fund is raised. (JEL G24, G31)
This paper shows that investors financing a portfolio of projects may use the depth of their financial pockets to overcome entrepreneurial incentive problems. Competition for scarce informed capital at the refinancing stage strengthens investors’ bargaining positions. And yet, entrepreneurs’ incentives may be improved, because projects funded by investors with “shallow pockets” must have not only a positive net present value at the refinancing stage, but one that is higher than that of competing portfolio projects. Our paper may help to understand provisions used in venture capital finance that limit a fund’s initial capital and make it difficult to add more capital once the initial venture capital fund is raised.
This paper shows that active investors, such as venture capitalists, can affect the speed at which new ventures grow. In the absence of product market competition, new ventures financed by active investors grow faster initially, though in the long run those financed by passive investors are able to catch up. By contrast, in a competitive product market, new ventures financed by active investors may prey on rivals that are financed by passive investors by “strategically overinvesting” early on, resulting in long-run differences in investment, profits, and firm growth. The value of active investors is greater in highly competitive industries as well as in industries with learning curves, economies of scope, and network effects, as is typical for many “new economy” industries. For such industries, our model predicts that start-ups with access to venture capital may dominate their industry peers in the long run. JEL Classifications: G24; G32 Keywords: Venture capital; dynamic investment; product market competition
We study a model of “information-based entrenchment” in which the CEO has private information that the board needs to make an efficient replacement decision. Eliciting the CEO’s private information is costly, as it implies that the board must pay the CEO both higher severance pay and higher on-the-job pay. While higher CEO pay is associated with higher turnover in our model, there is too little turnover in equilibrium. Our model makes novel empirical predictions relating CEO turnover, severance pay, and on-the-job pay to firm-level attributes such as size, corporate governance, and the quality of the firm’s accounting system.
This paper argues that banks must be sufficiently levered to have first-best incentives to make new risky loans. This result, which is at odds with the notion that leverage invariably leads to excessive risk taking, derives from two key premises that focus squarely on the role of banks as informed lenders. First, banks finance projects that they do not own, which implies that they cannot extract all the profits. Second, banks conduct a credit risk analysis before making new loans. Our model may help understand why banks take on additional unsecured debt, such as unsecured deposits and subordinated loans, over and above their existing deposit base. It may also help understand why banks and finance companies have similar leverage ratios, even though the latter are not deposit takers and hence not subject to the same regulatory capital requirements as banks.
The demand to develop convergent technology platforms, such as bio-functionalized medical devices, is rapidly increasing. However, the loss of biological function of the effector molecules during sterilization represents a significant and general problem. Therefore, we have developed and characterized a nano-coating (NC) formulation capable of maintaining the functionality of proteins on biological-device combination products. As a proof of concept, the NC preserved the structural and functional integrity of an otherwise highly fragile antibody immobilized on polyurethane during deleterious sterilizing irradiation (≥ 25 kGy). The NC procedure enables straight-forward terminal sterilization of bio-functionalized materials while preserving optimal conditioning of the bioactive surface.
Self-extracellular RNA (eRNA), released from stressed or injured cells upon various pathological situations such as ischemia-reperfusion-injury, has been shown to act as an alarmin by inducing procoagulatory and proinflammatory responses. In particular, M1-polarization of macrophages by eRNA resulted in the expression and release of a variety of cytokines, including tumor necrosis factor (TNF)-α or interleukin-6 (IL-6). The present study now investigates in which way self-eRNA may influence the response of macrophages towards various Toll-like receptor (TLR)-agonists. Isolated agonists of TLR2 (Pam2CSK4), TLR3 (PolyIC), TLR4 (LPS), or TLR7 (R848) induced the release of TNF-α in a concentration-dependent manner in murine macrophages, differentiated from bone marrow-derived stem cells by mouse colony stimulating factor. Here, the presence of eRNA shifted the dose-response curve for Pam2CSK4 (Pam) considerably to the left, indicating that eRNA synergistically enhanced the cytokine liberation from macrophages even at very low Pam-levels. The synergistic activation of TLR2 by eRNA/Pam was duplicated by other TLR2-agonists such as FSL-1 or Pam3CSK4. In contrast, for TLR4-agonists such as LPS a synergistic effect of eRNA was much weaker, and was not existent for TLR3-, or TLR7-agonists. The synergistic eRNA/Pam action was dependent on the NFκB-signaling pathway as well as on p38MAP- and MEK1/ERK-kinases and was prevented by predigestion of eRNA with RNase1 or by antibodies against TLR2. Thus, the presence of self-eRNA as alarming molecule sensitizes innate immune responses towards pathogen-associated molecular patterns (PAMPs) in a synergistic way and may thereby contribute to the differentiated outcome of inflammatory responses.
We have sampled atmospheric ice nuclei (IN) and aerosol in Germany and in Israel during spring 2010. IN were analyzed by the static vapor diffusion chamber FRIDGE, as well as by electron microscopy. During the Eyjafjallajökull volcanic eruption of April 2010 we have measured the highest ice nucleus number concentrations (>600 l−1) in our record of 2 yr of daily IN measurements in central Germany. Even in Israel, located about 5000 km away from Iceland, IN were as high as otherwise only during desert dust storms. The fraction of aerosol activated as ice nuclei at −18 °C and 119% rhice and the corresponding area density of ice-active sites per aerosol surface were considerably higher than what we observed during an intense outbreak of Saharan dust over Europe in May 2008.
Pure volcanic ash accounts for at least 53–68% of the 239 individual ice nucleating particles that we collected in aerosol samples from the event and analyzed by electron microscopy. Volcanic ash samples that had been collected close to the eruption site were aerosolized in the laboratory and measured by FRIDGE. Our analysis confirms the relatively poor ice nucleating efficiency (at −18 °C and 119% ice-saturation) of such "fresh" volcanic ash, as it had recently been found by other workers. We find that both the fraction of the aerosol that is active as ice nuclei as well as the density of ice-active sites on the aerosol surface are three orders of magnitude larger in the samples collected from ambient air during the volcanic peaks than in the aerosolized samples from the ash collected close to the eruption site. From this we conclude that the ice-nucleating properties of volcanic ash may be altered substantially by aging and processing during long-range transport in the atmosphere, and that global volcanism deserves further attention as a potential source of atmospheric ice nuclei.
Explosive volcanism affects weather and climate. Primary volcanic ash particles which act as ice nuclei (IN) can modify the phase and properties of cold tropospheric clouds. During the Eyjafjallajökull volcanic eruption we have measured the highest ice nucleus number concentrations (>600 L) in our record of 2 years of daily IN measurements in central Germany. Even in Israel, located about 5000 km away from Iceland, IN were as high as otherwise only during desert dust storms. These measurements are the only ones available on the properties of IN in the Eyjafjallajökull plume. The measured high concentrations and high activation temperature (−8 °C) point to an important impact of volcanic ash on microphysical and radiative properties of clouds through enhanced glaciation.