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
Because the board of directors is elected by the shareholders. If the shareholders aren’t kept happy, they’ll replace the directors. The simplest way to keep shareholders happy is to keep the stock price going up.
When companies go public (i.e. issue stocks) they then are essentially owned by the people who own the stocks
The people who own the stocks elect the board of directors who are the people who decide how the company is run. If they don’t run the company for the benefit of the shareholders they’ll get voted out and the shareholders will vote in people who will.
And the shareholders care a lot about stock prices.
Stocks generally also represent votes in the board meetings. People with a lot of stock in the company show up to those meetings and make decisions that they think will increase the value of their investment.
Employees and executives are also sometimes compensated with some company stock to give them a financial incentive to perform well.
And finally, if your share prices drop *too* low you’re at risk of a hostile takeover attempt – where another company or capital firm tries to buy 51% of your penny stock shares or form an alliance with some board members so that they now control the board of directors. Then they may vote to lay everyone off and strip the company for assets.
[Investorpedia has an article about just this.](https://www.investopedia.com/investing/why-do-companies-care-about-their-stock-prices/)
But the ELI5 is perception in the company. Having a healthy stock price signals investor confidence, making it easier to raise more money and avoid competitors engaging in a hostile take over of the company.
Because stocks represent ownership in the company, fractional though it may be, and the people who own the stocks care about stock prices – because those people like to be able to sell those stocks or use them as collateral for loans as a form of income. Companies are legally obligated to act in a manner that benefits stockholders – although defining “benefit” is wiggly enough for companies to justify, say, doing something that lowers the stock price in order to preserve the integrity of the company.
Like, Boeing is getting in a lot of trouble right now because they cared more about their stock prices than aircraft safety, which is causing the stock price to *drop*. Company leadership can (and should) justify actions that don’t immediately improve stock price as long as the actions are still in service of improving the company.
Point is, stockholders have the authority to dictate what a company does, to the extent of the fraction of ownership that their stock represents.
Companies also care in a more nebulous sense because *if* the company should need more cash on hand, they can sell more stock. If the stock price is high, they can sell less of the stock to accomplish whatever goal they’re aiming for. Stock price is also a *very very general and not at all specific or reliable but kind of sort of a reasonable* indicator of company health. When a stock price drops, it’s probably because something is going wrong, and vice versa. That is not at all even remotely *always* true, but it’s true *enough* that if you want a quick idea of how a company is doing, you can look at their stock price trends.
The company is owned by the investors that bought the stock and those investors want their investment to go up.
If the stock goes down investors can fire the current company management since they are the ones that own the company.
Company management cares about their jobs so they keep the investors that own the company happy by keeping the stock price the same or making it go up. Often times a lot of the highest management and employees also have some company stock, which makes them also care about a good stock price.
Key decision makers themselves own stocks or receive compensation in stocks. They have an interest in keeping the price up, sometimes with excessive short-termism.
Owning stock means you own a portion of the company. The stockholders are entitled to any profits (dividends) the company makes, and choose a CEO to run the company so as to maximize long term profits. Stockholders can also sell their shares of the company, and the amount they will get for their shares is directly connected to the amount of profit that company is expected to produce.
There are a lot of reasons.
Maybe the most important reason is that the people and institutions that bought the stock, who funded the raising of money that you referred to, are VERY interested in the stock price going up. That, after all, is the reason they bought the stock in the first place. If the stock price doesn’t go up in a steady regular pattern, they’ll get very disillusioned. This is important to the company management team because the major stock buyers make up the board of directors of the company. If they get too disillusioned they will fire the management team of the company and hire other people instead. Management wants to keep their jobs, so they care about what the shareholders want.
You’re incorrect in the assumption that stock issue is a one-time thing.
Companies will have an internal assessment of what they think the stock price should be and what the market says it is. They will also have an assessment of how much cash they have on hand, and how much they need to fund their upcoming projects.
Based on these two factors, companies can make the decision to either issue more stock or buy stock back from the market. Many companies constantly issue fresh stocks to compensate employees, rather than handing out cash. This makes them sensitive to the prevailing stock price on a regular basis.
As a practical example, AMC has been issuing fresh shares (diluting) a lot over the last few years to sustain their business, and they’ve gotten a great deal doing this because of the inflated share price (thank r/wallstreetbets).
This is all on top of investor pressure, which is better described in the other answers.
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