I understand that stocks rise and fall based on the principle of supply and demand, but do these fluctuations have a direct impact on the underlying company? If so, by what mechanism?
2006-12-07 06:21:10 · 8 answers · asked by dm032 2 in Business & Finance ➔ Investing
In general, the share price does not directly impact the company. However, there are times when it does.
If a company is considering doing a secondary offering (selling new shares), the stock price is very relevant.
Likewise, if someone is thinking about buying the company, the share price is very important.as well.
But these things don't happen every day to every company.
Also indirectly, but within the company, the share price affects many of the company employees who may hold shares and/or options. This is not a direct impact to the company per se, but isn't as far removed as just people in general who own shares. The impact here is that if an employee's incentive shares are worth a lot, the company is more likely to retain the talent who received the shares/options. If the shares/options are worthless, then you may see more of the good people leaving the company, which in turn will affect the company.
Hope that helps!
2006-12-07 06:31:36 · answer #1 · answered by Yada Yada Yada 7 · 2⤊ 0⤋
With the increase in the value of shares the company always stand to an advantage ( taking loans from financial inst. etc ). The value of the shares shows the performance of the company and future expectations. Correspondingly the shareholders too gain, as their investments grows, which gives them the option to sell their shares for a better price than the IPO price. Thus the owners of the Company, business, are affected by the share price. As far is risk is concerned, its everywhere for any investments made. If people are of the opinion that to invest in stock market is gambiling, then the safest bet for them is savings account of the bank. rgds Suresh Menon
2016-05-23 04:04:50 · answer #2 · answered by Anonymous · 0⤊ 0⤋
Stock price of a company is directly linked to it's performance. So the CEO's would like to see their shares traded often and the price of those shares to move up. It is a sign of confidence by the investing community on the strength of the Management which helps them to further their cause of retaining their position for long. If the market values their company poorly then they cannot hope to remain on their jobs for long. Someone else will take over their job who can initiate better performance. Also if they underperform some outsider can come and raid your company like hostile takeovers are done which will put the CEO in a wedge. So stock price is a good indicator of performance.
Economicaly this is some sort of checks and balance in the eoconomy, where if a company doesn't allocate it's resources properly and mismanage then the market will not allocate resources to it by devaluing them and the CEO's will be in trouble. So price of stock directly correlated to performance.
2006-12-07 07:07:28 · answer #3 · answered by Mathew C 5 · 0⤊ 0⤋
There are a couple of easy answers. Often the market value of the company's is used to determine the value of bonuses paid to top performers in stock or stock options. If the value drops, then the extra x-number of shares paid to the executive is worth less than if it rose. Another time is when market value is part of the determiner if the corporate shares issued but held are used as collateral for a loan. This becomes important when the value of the shares is used for loans to buy shares in a buy-out, as when someone is trying to take control of a company.
Market prices are a bogus measure anyway. We commonly measure a company's size by market capitalization: value of the last share traded times the number of outstanding shares. As with the supply and demand interaction, if someone, say Bill Gates wanted to realize his "worth" in cash by selling all of his Microsoft holdings, then the price would plumet when the shares were sold and if he were "worth" 70 billion before he would possibly be "worth" only ($3.68 book value per share times how many of the 9.8 billion shares he sold).
2006-12-07 06:38:13 · answer #4 · answered by Rabbit 7 · 0⤊ 0⤋
If you consider the people that work for the company as part of the company, then yes it does loose money in a manner of speaking. Many employees of companies own quite a bit of company stock, and they feel the pinch of lower stock prices. But technically the company does not loosed money
2006-12-07 06:28:33 · answer #5 · answered by Anonymous · 0⤊ 0⤋
Generally speaking, the price that buyers pay for shares demonstrate a certain amount of faith in that particular company. Buyers are willing to pay higher share prices for companies that they have a lot of faith in. So I do think that companies lose money based on their stock price.
2006-12-07 06:30:52 · answer #6 · answered by chocolate-drop 5 · 0⤊ 0⤋
Share price has nothing to do with the finances of a company. Many companies, specifically internet companies, bleed red ink (they operate with losses), but their share prices may be high. Share price reflects the relative value of the company as perceived by shareholders.
2006-12-07 06:25:51 · answer #7 · answered by jseah114 6 · 0⤊ 0⤋
Yes.
If your shares are worth $500.00 (Like Google) you can buy YouTube for $1,600,000,000.00 USD.
If your shares are worth $39.00 (Like Amazon) you could be bought by Google.
2006-12-07 06:55:53 · answer #8 · answered by Anonymous · 0⤊ 2⤋