The economics of private placements : middle-market corporate finance, life insurance companies, and a credit crunch

In this article, Stephen Prowse examines the private placement market. Like the bank loan market, this market is information-intensive: parties negotiate lending terms, lenders evaluate and monitor borrowers' credit risk, covenants are used to control risk, and borrowers lack access to public debt markets. There are also differences from the bank loan market : debt instruments are securities, not loans; maturities are longer; interest rates are fixed, not floating; and the principal investors are life insurance companies not banks. The article provides evidence on the credit crunch that occurred in the below-investment-grade sector of this market in the early 1990s and that apparently continues to this day. Asset-quality problems in 1990 and 1991 focused regulatory, stock market, media, and policyholder attention on the financial solvency of insurers, who withdrew from this sector of the market. The article also examines reasons for the persistence of the crunch.Bank loans ; Interest rates ; Credit

The economics of the private equity market

The private equity market is an important source of funds for start-ups, private middle-market companies, firms in financial distress, and public firms seeking buyout financing. Over the past fifteen years, it has been the fastest growing corporate finance market, far surpassing the public equity and public and private bond markets. In this article, Stephen Prowse examines the economic foundations of the private equity market and describes its institutional structure. He also explores reasons for the market's explosive growth and highlights the main characteristics of that growth, including data on returns to private equity investors. He describes the important investors, intermediaries, and issuers in the market and their interactions with each other. In particular, he investigates how the major intermediary in the market--the limited partnership--addresses the severe information problems associated with investing in small private firms.Capital market ; Financial markets ; Venture capital

Alternative methods of corporate control in commercial banks

In this article, Stephen Prowse investigates how owners of commercial banks encourage management to follow value-maximizing policies. While the "corporate control mechanism" in nonfinancial firms is well documented, for the banking industry much less evidence is available. Moreover, unique factors in the operating environment of commercial banks may mean that their corporate control mechanism operates differently from that of nonfinancial firms. ; Prowse analyzes a sample of bank holding companies (BHCs) from 1987 to 1992 to determine how many underwent a change in corporate control by hostile takeover, friendly merger, action by the board of directors, or intervention by regulators. Prowse finds that the primary market-based corporate control mechanism among BHCs is action by the board, although bank boards appear to be much less assertive than boards of nonfinancial firms. Overall, the market-based corporate control mechanisms in banks do not appear as efficient at disciplining managers as they are in other firms. By default, this has given a primary role to regulators to provide a "last resort" control mechanism. Prowse analyzes reasons for this and evaluates how proposed banking legislation might affect corporate governance.Banks and banking ; Corporations

Corporate finance in international perspective: legal and regulatory influences on financial system development

In the postwar period, systems of corporate finance and governance have emerged in the United States, Japan, and Germany that are dramatically different from one another. To date, there has been little focus on why. Stephen Prowse argues that differences in three aspects of the legal and regulatory environments in these countries are responsible. First, the severity of legal and regulatory restraints on financial institutions being "active" investors in firms. Second, the degree to which corporate securities markets are suppressed by regulation. Finally, the degree to which securities markets are "passively" suppressed by the absence of mandated disclosure requirements. ; Prowse compares the merits of each system and argues that the U.S. system may be more favorable to the growth of high-technology firms. He discusses the future evolution of each system. The German and Japanese regulatory environments are changing rapidly to increase the role of securities markets in corporate finance. The U.S. environment is also changing to give financial institutions more latitude to be active investors in firms. Over the long term, the regulatory environments of all three countries appear to be converging. The focal point of this convergence is an entirely new environment in which financial institutions are free to be active investors and corporate securities markets are unhindered by regulatory obstacles.Corporations - Finance ; International finance

Localization of type 1 diabetes susceptibility to the MHC class I genes HLA-B and HLA-A

The major histocompatibility complex (MHC) on chromosome 6 is associated with susceptibility to more common diseases than any other region of the human genome, including almost all disorders classified as autoimmune. In type 1 diabetes the major genetic susceptibility determinants have been mapped to the MHC class II genes HLA-DQB1 and HLA-DRB1 (refs 1-3), but these genes cannot completely explain the association between type 1 diabetes and the MHC region. Owing to the region's extreme gene density, the multiplicity of disease-associated alleles, strong associations between alleles, limited genotyping capability, and inadequate statistical approaches and sample sizes, which, and how many, loci within the MHC determine susceptibility remains unclear. Here, in several large type 1 diabetes data sets, we analyse a combined total of 1,729 polymorphisms, and apply statistical methods - recursive partitioning and regression - to pinpoint disease susceptibility to the MHC class I genes HLA-B and HLA-A (risk ratios >1.5; Pcombined = 2.01 × 10-19 and 2.35 × 10-13, respectively) in addition to the established associations of the MHC class II genes. Other loci with smaller and/or rarer effects might also be involved, but to find these, future searches must take into account both the HLA class II and class I genes and use even larger samples. Taken together with previous studies, we conclude that MHC-class-I-mediated events, principally involving HLA-B*39, contribute to the aetiology of type 1 diabetes. ©2007 Nature Publishing Group

Ownership structure, investment behaviour and firm performance in Japanese manufacturing industries

Abstract Using data spanning the 1996-98 fiscal years of 247 of Japan's largest manufacturers, we empirically evaluate the extent to which a firm's investment behaviour and financial performance are influenced by its ownership structure. To do so, we examine six distinct categories of Japanese shareholders: foreign investors, investment funds, pension funds, banks and insurance companies, affiliated companies and insiders. Our findings strongly indicate that the relationship between the equity stakes of a particular category of investor and a firm's financial performance and investment behaviour is considerably more complex than is depicted in simple principal-agent representations. Such a result emphasizes the importance of making finely grained and contextually relevant distinctions when modelling and evaluating corporate governance relations

An immune dysfunction score for stratification of patients with acute infection based on whole-blood gene expression

Dysregulated host responses to infection can lead to organ dysfunction and sepsis, causing millions of global deaths each year. To alleviate this burden, improved prognostication and biomarkers of response are urgently needed. We investigated the use of whole-blood transcriptomics for stratification of patients with severe infection by integrating data from 3149 samples from patients with sepsis due to community-acquired pneumonia or fecal peritonitis admitted to intensive care and healthy individuals into a gene expression reference map. We used this map to derive a quantitative sepsis response signature (SRSq) score reflective of immune dysfunction and predictive of clinical outcomes, which can be estimated using a 7- or 12-gene signature. Last, we built a machine learning framework, SepstratifieR, to deploy SRSq in adult and pediatric bacterial and viral sepsis, H1N1 influenza, and COVID-19, demonstrating clinically relevant stratification across diseases and revealing some of the physiological alterations linking immune dysregulation to mortality. Our method enables early identification of individuals with dysfunctional immune profiles, bringing us closer to precision medicine in infection.peer-reviewe