Introduction to Financial Management and Capital Raising

Vocabulary based on lecture notes covering business organizations, agency problems, corporate governance, and primary market distribution methods.

Sole Proprietorship

A business owned by one person with unlimited personal liability and personal taxation.

Partnership

A business owned by two or more people sharing profits and responsibilities.

Corporation

A legal business entity separate from its owners, characterized by limited liability and double taxation.

Double Taxation

A scenario in corporations where the entity pays taxes on profits and shareholders pay taxes on dividends.

LLC

A Limited Liability Company combining benefits of corporations and partnerships, offering limited liability and flexible taxation.

Agency Problem

A conflict of interest between shareholders (principals) and managers (agents).

Information Asymmetry

When managers know more about the company than shareholders.

Stock Options

A form of managerial compensation used to encourage managers to increase shareholder value.

Corporate Governance

Rules and systems used to oversee and manage companies responsibly.

Sarbanes–Oxley Act

Legislation required after the Enron scandal that mandates CEO and CFO certification of financial statements.

ESG

Expectations related to Environmental, Social, and Governance responsibility.

Shareholder Activism

The act of shareholders pushing companies to make changes in management or policies.

Dutch Auction (Uniform Price Auction)

A method where buyers bid prices and quantities for shares, and all successful bidders pay the same final price.

Flotation Costs

Transaction costs incurred when a firm raises money by issuing securities, such as legal fees and the underwriter’s spread.

Underwriter’s Spread

The difference between the price paid to the company and the public offering price.

SPAC

A company with no operations created to raise money through an IPO to acquire a private company.

Diamond Eagle Acquisition Corp.

The SPAC that merged with DraftKings in a well-known 2020 success story.

ICO (Initial Coin Offering)

A method of raising funds using blockchain-based cryptocurrency tokens.

Ethereum

The blockchain platform that raised about $18\text{ million}$ in $42\text{ days}$ during its 2014 ICO.

Ether (ETH)

The token sold during the Ethereum ICO, which started around $0.30$ per unit.