Ratchet Effect
Content
Definition
The Ratchet Effect refers to a situation in financial agreements where certain provisions allow for adjustments in share prices or valuations under specific conditions, often protecting investors.
Usage and Context
The ratchet effect allows for share price changes under certain conditions to protect investors` interests.
Frequently asked questions
- What is the ratchet effect in finance? The ratchet effect in finance is when certain terms adjust automatically, like equity or interest rates, favoring one party when conditions change.
- What does ratchet mean in finance? In finance, a ratchet mechanism adjusts terms like share prices or interest rates to protect investors from unfavorable changes.
- What is the ratchet concept? The ratchet concept safeguards early investors by recalculating their ownership percentage if later investors get better terms.
Benefits
The ratchet effect allows for share price adjustments under certain conditions to safeguard investors.
Conclusion
The ratchet effect ensures investor protection by allowing specific share price changes.
