Why do companies care about their share prices?

Question

Why does a company care about the value of its stock after it is initially issued? Surely the daily fluctuations in its share price make no difference to the company itself, and the only people who lose or benefit are those who trade the shares?

Answer 1

Who is the company? Is it not the owners? Aren't they the ones who have shares? So -- of course they care about the value of their investments.

Perhaps you mean to ask "Why do managers care about share price?" Managers are supposed to work in the best interest of the owners -- so should care about share price. It might be noted that they will actually look out for their own interests rather than the interests of shareholders. There is a whole branch of finance devoted to this problem (often called the Principal-Agent problem).

But managers care about share price for two reasons. The first is that they are often shareholders themselves -- so if they raise share price, they also increase their own worth. But perhaps the real answer is that if they don't raise share prices, the shareholders will fire them.

Answer 2

You are right that the daily fluctuations really don't make a difference, but when there becomes big swings it does matter to them. If I'm not mistaken, I believe their loans can be based on what the companies value is at, and they have to stay above a certain valuation in order to maintain status. Although there are other factors, a company is really only worth what someone else will pay for it. So if the share price is $30.00 and they have 20M shares out, the value is 600M. Whereas, if the stock drops to $15.00 they are only worth 300M.

Answer 3

The officers of the company should care about the long term health and growth of the company, not the day to day stock prices. Too often, the officers have tons of stock options, which encourages them to look for short term profits at the expense of long term growth.

Answer 4

Because the executive of the company issue themselves a pot load of stock options; and if the price of the stock does not go up they will not make the millions of dollars they anticipated making on those options.

Answer 5

1- the company employees and management typically are the largest shareholders.

2- Companies utilize investment $$ to help operate the business, who would invest in a company who stated that they don't care about increasing investor returns?

Answer 6

Reflection of the company performance. Public acceptance of the management decisions. Easier to raise more capital if needed in the future. Easier to get loans