Why does stock price matter?

Question

Why does stock price matter for a company?
(Excluding the obvious reason: To be able to sell stock at a higher price)

Answer 1

The price of the stock multiplied by the number of shares outstanding represents the market value of the company. This is usually higher than book value, which is the amount of capital reported on the company's balance sheet. To some extent, the market price is indicative of what the investing public thinks of the company and its future. If the price is many times the amount of earnings per share, investors are placing a high value on the company or have expectations that the company's earnings will be increasing in the future.

Many corporations offer stock options to their officers and stock purchase plans to their employees. When these grants are made, the market price of the stock is relevant and is used to account for the options and purchase plans. Established companies typically do not sell more stock frequently, although they may buy some of their own stock and resell it.

If the company is a candidate for being taken over by another corporation in a merger, the market price becomes relevant because it determines the price that will be paid to accomplish the merger.

Answer 2

In addition to Serge's excellent answer, I add one thing. The company might want to raise additional equity in the future. This means selling more stock to the public.

Answer 3

It's their own currency.

Adidas bought Reebok
Nike bought Converse.
Daimler bought Chrysler. (In 1998)

If the stock price for Daimler Chrysler goes up then they can buy Ford with their shares.

On the other hand, if the stock price for Daimler Chrysler goes down then they are forced to sell something to survive.

Daimler Chrysler sold Chrysler recently.

If they don't increase their share price then Toyota could buy them in the future.