How exactly are stocks linked to the underlying companies?

Question

I understand that they raise funding from the IPOs but after that how are stocks related to the companies?

Answer 1

You own a true piece of the company. The market will dictate what that company is worth from day to day.

Your ownership entitles you to a say in how the company is managed. You wil get a proxy statement probably annually that you can vote, and you will get represented in the same proportion s your ownership stake. One share = one vote. You will be asked to elect a board of directors to represent your interests in corporate governance. If you have issues with how the company is run, you can get questions put on the proxy statement for other investors to vote on.

You also get a claim on the underlying earnings. If enough shareholders demand it, the earnings, or some portion thereof, are paid out as dividends and you are paid based on your proportional stake.

It is absolutely, unquestionably, a true ownership stake in the underlying company.

Answer 2

When you purchase stock you are a part owner in the company. Unfortunately, the company management may run rough shod over your interests. Their personal interests many times take precedence. One of their favorite pastimes.

If the company does well--some do and some do not--your ownership interest should increase in value. Sometimes the value of your ownership interest is effected by events that have little to do with how the company is performing.