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
From a business standpoint, if lowers their ability to issue stock in exchange for new capital.
From an internal moral standpoint, many employees may have a chunk of their savings in company stocks (especially executives). People also get worried about their jobs after a bad run of results, which leads to people jumping ship early which also hurts morale and the business.
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