An investor is a person or entity that allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital the investor usually purchases some species of property. Types of investments include equity, debt, securities, real estate, infrastructure, currency, commodity, token, derivatives such as put and call options, futures, forwards, etc. This definition makes no distinction between the investors in the primary and secondary markets. That is, someone who provides a business with capital and someone who buys a stock are both investors. An investor who owns stock is a shareholder.
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👉 Investors in the context of Equity issuance
An equity issuance or equity issue is the sale of new equity or capital stock by a firm to investors. Equity issuance can involve a private sale, in which the transaction between investors and the firm takes place directly, or publicly, in which case the firm has to register the securities with the authorities and the sale takes place in an organized market, open to any registered investor, a process more akin to an auction. Two common types of public equity issuance are initial public offerings (IPOs) and secondary equity offerings (SEOs or FO). This is one of the ways firms finance themselves, that is, they obtain funds from investors in order to engage in business.
In this Dossier
Investors in the context of Corporations
A corporation or body corporate is an individual or a group of people, such as an association or company, that has been authorized by the state to act as a single entity (a legal entity recognized by private and public law as "born out of statute"; a legal person in a legal context) and recognized as such in law for certain purposes. Early incorporated entities were established by charter (i.e., by an ad hoc act granted by a monarch or passed by a parliament or legislature). Most jurisdictions now allow the creation of new corporations through registration. Corporations come in many different types but are usually divided by the law of the jurisdiction where they are chartered based on two aspects: whether they can issue stock, or whether they are formed to make a profit. Depending on the number of owners, a corporation can be classified as aggregate (the subject of this article) or sole (a legal entity consisting of a single incorporated office occupied by a single natural person).
Registered corporations have a legal personality recognized by local authorities and their shares are owned by shareholders, whose liability is generally limited to their investment. One of the attractive early advantages corporations offered to their investors, compared to earlier business entities like sole proprietorships and joint partnerships, was limited liability. Limited liability separates control of a company from ownership and means that a passive shareholder in a corporation will not be personally liable either for contractually agreed obligations of the corporation, or for torts (involuntary harms) committed by the corporation against a third party (acts done by the controllers of the corporation).
Investors in the context of Political risk
Political risk is a type of risk faced by investors, corporations, and governments that political decisions, events, or conditions will significantly affect the profitability of a business actor or the expected value of a given economic action. Political risk can be understood and managed with reasoned foresight and investment.
The term political risk has had many different meanings over time. Broadly speaking, however, political risk refers to the complications businesses and governments may face as a result of what are commonly referred to as political decisions—or "any political change that alters the expected outcome and value of a given economic action by changing the probability of achieving business objectives".
Investors in the context of Financial integration
Financial integration is a phenomenon in which financial markets in neighboring, regional and/or global economies are closely linked together. Various forms of actual financial integration include: Information sharing among financial institutions; sharing of best practices among financial institutions; sharing of cutting edge technologies (through licensing) among financial institutions; firms borrow and raise funds directly in the international capital markets; investors directly invest in the international capital markets; newly engineered financial products are domestically innovated and originated then sold and bought in the international capital markets; rapid adaption/copycat of newly engineered financial products among financial institutions in different economies; cross-border capital flows; and foreign participation in the domestic financial markets.
Because of financial market imperfections, financial integration in neighboring, regional and/or global economies is therefore imperfect. For example, imperfect financial integration can stem from the inequality of the marginal rate of substitutions of different agents. In addition to financial market imperfections, legal restrictions can also hinder financial integration. Therefore, financial integration can also be achieved from the elimination of restrictions pertaining to cross-border financial operations to allow (a) financial institutions to operate freely, (b) permit businesses to directly raise funds or borrow and (c) equity and bond investors to invest across the state line with fewer [or without imposing any] restrictions. However, it is important to note that many of the legal restrictions exist because of the market imperfections that hinder financial integration. Legal restrictions are sometimes second-best devices for dealing with the market imperfections that limit financial integration. Consequently, removing the legal restrictions can make the world economy become worse off.In addition, financial integration of neighboring, regional and/or global economies can take place through a formal international treaty which the governing bodies of these economies agree to cooperate to address regional and/or global financial disturbances through regulatory and policy responses. The extent to which financial integration is measured includes gross capital flows, stocks of foreign assets and liabilities, degree of co-movement of stock returns, degree of dispersion of worldwide real interest rates, and financial openness. Also there are views that not gross capital flows (capital inflow plus capital outflow), but bilateral capital flows determine financial integration of a country, which disregards capital surplus and capital deficit amounts. For instance, a county with only capital inflow and no capital outflow will be considered not financially integrated.