Why should a change in their stock price affect a company ?

Question

If I understand it correctly, a company issues stock and

sells it to raise capitol. Once they have sold the stock to

the public, and been paid for it, why should any changes

to the price of the stock matter to them anymore ?

In other words, how could it harm a company if people

sell off the stock and the value of it declines a lot ?

Answer 1

raising capital will cause extra dilution of the shares

Answer 2

The stock price does affect the company as following:

- Shareholders (BOSS) make money when the stock price goes up. So if the stock keep going down and the company (CEO) doesn’t care, guess what the BOSS is going to decide? The CEO gets fired if it persists regardless of the reason why, and on the long run, stocks are a reflection of the company’s performance.

- If the company wants to issue additional shares in the future, prospective investors would be hesitant to buy in.

- Corporate debt of the company will have a low credit rating therefore sold at a discount

- Public relation: Good Company should have a good stock. Or else nobody want it.

Answer 3

It doesn't. The change in stock price has no effect on the company what so ever. The change of the stock price is the percieved value that the investor has assigned to it. If the stock of a company declined in value for no reason, the company can buy back all it's share. However, there is a corralation of the stock price and success of the company.

Answer 4

Have you been following the fund raising for the UK banks? That will give you one answer. Also some company overdrafts have covenants on which the loan is secured on a share price level. If the share price drops below a certain level the overdrafts can be renegotiated.

Answer 5

The stock price does not affect the performance of the company as such.  In fact it is reverse.

But it affects the net worth of promoters.

Also to raise further funds, it is always good to have better stock price.

Answer 6

You asked a thinker's question based on one capital structure model.  A typical public C corporation "company," however, is the entire CCC GOMES circle of 8 stakeholders: Customers, Community, Creditors, Goverment, Owners, Managers, Employees, and Suppliers.

Shares of stock also can be structured in more than one ownership model and typically include more than what sold to the public shareholders.  For example, SEC-approved shares may be held as company treasury (to be sold to generate cash from, or purchased to distribute cash to, shareholders), used as incentives and collaterals to obtain debt financing (preferred stocks and convertible debentures), used as part of incentive and loyalty handcuff for key management and employees (employee stock, or stock options, compensations), sold at discount price as part of employee compensation package (employee stock purchase plans), used to acquire control of other companies, etc...

When stock price goes up, therefore, not only the shareholders but also all of the other 7 stakeholders gain. For example, beside the obvious owners, management, and employees, the govement will receive more tax revenue from shareholder capital gain taxes and employee stock option gain taxes.  Community would receive more local jobs, more nexus VAT, sales tax, and taxes from supporting local busineses. Suppliers would receive more businesses and their receivables would have higher present value to a factor bank.... Creditors could convert debt to stock at a gain, or could resell the notes at higher prices due to a lower recourse risk level.

Answer 7

When they sell stock they are just selling the company to a bunch of different new owners.  The former owners probably dont care what happens to the stock.  But the new owners do.  If the stock price declines the new owners lose their investment.  A decline in the stock price can also affect a company's credit rating.

Answer 8

The reason it matters is because if the price of stock is high that means the company is doing well and prospering. Look at microsoft they had stock that was sky rocketing..you think once they sold there stock to the shareholders to raise capitol they just said ah well we will forget about that. No  Bill Gates made sure his company would be successful by developing new software and products. It the stock is declining it usually means the company is going to the toilet. Stock plays a significant role in the success of a publicly held company it could ultimately shut a business down.