What I am reading: When I heard that Richard Thaler won the Nobel Prize for Economics*, I thought of Nudge, of the cameo in The Big Short, and, naturally, of the Mongolian Stock…, Behavioral finance and Mongolian Stock Exchange. Financing can be in the form of equity (and in some circumstances cash flow) or debt. There is also another form of financing but it’s very niche specific, it comes in the way of bail bonds services and similar types of loans, where they’ll loan you money based on collateral in the form of goods like cars, properties, jewelry, things like that.
Equity means that the stockholder gets the return – the value of his or her investment in the business.
Note that to qualify for corporate debt, there has to be an existing equity arrangement or a written agreement to create a debt obligation. For these terms to be available to the business, it has to be a real equity share of stock. (This may be a common occurrence at most of the large publicly traded companies.)
To get into corporate debt, a debt must provide at least as much long-term capital as it costs to repay. In addition, there has to be a contractual agreement made with the corporate entity in the form of a charter or bylaws.
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