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
Stock price crash is a symptom, not a cause. That being said, if majority of employees have stock options, it can cause a lot of discontent which can affect company health.
Also the opposite is true as well , stock price can go up but company’s performance hasn’t changed. The whole GameStop stock saga during the pandemic is a perfect example of that
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