From my little understanding, company’s issues stocks to raise money. So once the company’s sell those stocks, why does it stock prices matter to them?
In: Economics
First, they don’t only sell stock once. Companies are authorized to issue a certain amount, and it’s normal to issue stock in stages and hold some in reserve. Therefore, a higher stock price means the company is able to get more money by issuing shares or using shares as collateral for loans. Basically it means the company is worth more which is a good thing.
Second, stock conveys ownership in the company and so the company leadership has a legal duty to act in the interest of the shareholders. Maximizing price is one way but there are also things like dividends that we don’t really need to get into.
Ultimately, each traded share conveys voting rights so shareholders can kick out company leadership if the stock price makes them unhappy. This means that if the stock price becomes too low, the company is vulnerable to someone or another company buying enough shares to demand changes or actually become the majority shareholder. This is basically what a hostile takeover is but voting rights normally only matter during annual shareholder meetings which tend to be more boring.
Lastly, the people that work for a company often own stock, so when it’s worth more the people that work there can cash out.
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