It sounds like a obvious question but hear me out. Yes, I understand why stock price and how a company performs have a direct correlation. I do also understand that a company’s performance affects its stock price. However, I do not understand the other way around, especially when the shares crashes.
This is my understanding how stock works: when a company goes public, the company raises money from the public in exchange to the ownership of the company. Stock price going up doesn’t mean the company gains more money as the investment is already made. Stock price going down doesn’t mean it looses money as they do not have to pay back for the investment. So why do companies go bankrupt due to its stock price crashing (and possibly get delisted)?
In: Economics
Public companies will typically give bonuses in stock instead of cash and you can’t sell it for some period if time, typically a year. If you got $50k in stock that declined 50% you’d be pissed. It there for increases demand for cash bonuses and makes stock grants less attractive. Companies also buy other companies via stock deals-they give the other firm $x worth of their stock instead of spending cash. Declining stock prices affects this as well
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