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
so when a stock crashes it messes with investor trust and can make it hard to raise cash in the future. it’s like showing up to a party wearing socks and sandals. nobody wants to invest if they think you’re a mess. also with lower stock price it can lead to issues with loans or investors getting nervous. companies need that confidence to stay afloat
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