Economy
Discover facts about economy. Small discoveries that change the way you see familiar things.
Economy
Credit-rating agencies are paid by the companies they grade
Bond ratings can sway investors, but the rating agencies collect fees from the companies they assess. The grader’s customer is also the subject of the grade.
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How companies offer ownership without a vote
Phantom stock lets a company promise employees a future bonus tied to the company’s value. They get a financial stake without receiving shares or voting rights.
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Application programming interfaces form recurring revenue
A developer pays a small fee every time their software calls a company’s server through its API. One call costs little; thousands of calls keep sending money…
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Market makers profit entirely from the bid-ask spread
A market maker posts a price to buy and another to sell. The gap between those prices is its take for standing ready to trade; tiny gaps can pay when repeated…
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Technical debt acts as an invisible corporate liability
A quick software patch can save a company time today and saddle it with extra work every time someone changes the code later. That cleanup bill is technical…
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Walled gardens trap users in closed ecosystems
A rival device may not work as smoothly with the apps, software, and services you already use. Switching can mean giving up convenience or compatibility, even…
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How the ultra-rich manage money outside normal banks
A very wealthy family may hire its own private firm to manage investments, trusts and other financial affairs. That office works for one family, and its…
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Margin calls violently liquidate leveraged portfolios
Borrowed money magnifies the pressure when an investment falls. The broker can demand cash to cover the loan; if the investor can’t pay, the broker may sell…
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Corporate boards rarely challenge the chief executive
The people meant to question the CEO may owe their seats to the CEO and receive generous stipends. That can make directors less eager to challenge the person…
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Why stock options can make quitting costly
A four-year vesting schedule makes part of a worker’s pay depend on staying. Leave early, and unvested options can disappear with the job, even if the…
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The hidden stock market where big trades happen
A giant investor can buy or sell shares inside a dark pool before the rest of the market sees the order. Keeping the trade private can limit the market’s…
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Corporate dividends admit a lack of growth ideas
When a company pays a large dividend, it is sending profits back to shareholders instead of putting them into research or expansion. That can signal a mature…
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Buying a company can create an asset you cannot touch
When an acquisition price exceeds the fair value of identifiable net assets, accounting records the residual as goodwill. It can reflect expected synergies…
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Sale-leasebacks artificially inject quick corporate liquidity
A company can sell a building to bring in cash, then stay put by renting it back. The cash arrives now; decades of rent come with it.
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Startups measure success by their monthly burn rate
Every month, a startup spends part of the cash it has raised. Its burn rate shows how quickly that balance is shrinking—and how soon it may need new funding.
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Why billion-dollar startups can value themselves
A handful of investors can set a startup’s private valuation in one funding deal. That price can then make the whole company look worth billions—even though…
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Alpha implies your portfolio manager is a genius
The fee pitch rests on beating the market: alpha measures a portfolio’s return above its benchmark. The catch is that consistently delivering that extra…
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Why some companies hide their most valuable formulas
A patent gets legal protection by publishing how an invention works. A company that wants to keep a formula or algorithm hidden can instead limit access and…
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The public companies that start with no business
The unusual part is the order: investors fund a public company before it has chosen what business to own. The SPAC uses the money it raises to merge with one…
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Why a stock split makes shares look cheaper
A split gives each shareholder more shares, but each one is worth proportionally less. The lower sticker price can look like a bargain even though the company…
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Why universities act like investment firms
Some universities manage endowments worth billions, investing in venture capital, private equity and complex derivatives. A campus may teach students by day…
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Quarterly earnings reports create severe short-termism
Every 90 days, investors get a fresh set of results to judge. Executives under that spotlight may favor numbers that look good now over plans that take longer…
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Bond covenants severely restrict executive decisions
Lenders can write rules into a loan that tie executives’ hands: no dividends, no acquisitions, and no certain financial risks while the debt remains unpaid.…
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Why failed CEOs can leave with millions
A CEO can be fired and still collect millions because the severance deal was written into the contract in advance. These “golden parachutes” are triggered by…
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