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
No-no, it works the other way around. Stock price crashes because the investors find out the company is screwed and not worth much anymore. Stock price doesn’t crash if there is nothing wrong with the company, and if it did, it would be very temporary with other investors simply buy up the cheap stock and become new owners, the price would recover quickly.
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