Special-Purpose Entity

Definition:

A financing technique in which a company decreases its risk by creating separate partnerships, rather than subsidiaries, for certain holdings and solicits outside investors to take on the risk. In order to qualify as a special-purpose entity, whose financial results are not carried on the company's books, the unit must meet strict accounting guidelines. Compare to subsidary.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Mutual fund theorem

A result associated with the CAPM, asserting that investors will choose to invest their entire risky portfolio in a market-index or mutual fund.

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