eli5 why do companies with billions in the bank care about stock prices. Wouldn’t they be financially fine if the stock lost money?
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Companies can still raise money through new stock sales, so there’s that too care about.
But moreso companies are controlled by their board of directors. The board members are usually large stake shareholders, and they serve at the pleasure (they can be voted out) by other shareholders. So companies care about their stock price because the people controlling them make money through the stock.
Many privately held companies (companies not on the stock market) don’t care about their such prices because the owners don’t plan to sell shares soon.
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Stocks are also a measure of the business’ health. Think of stock price as a consequence, not a cause, of the company’s present situation
The company is run by the board, and the board serves at the behest of the shareholders.
Because of this the board will almost always do what’s in the best interest of the shareholders, not the employees, not the customers.
Since the shareholders own stock, the value of that stock directly translates to how much wealth the stock holders own.
A stock price dropping $1 can translate to millions of dollars lost in value for shareholder.
Publicly traded companies have a feduciary responsibility to their shareholders. The CEO works for the board of directors who shareholders vote for every year.
Additionally, if the share price dips, the company is more vulnerable to takeovers, which often result in directors losing their jobs.
Their owners would be annoyed, because their owners care** about what they can sell the stock for
** may or may not, depends on the individual investor. Most care about what they can sell the stock for, because that’s more tax efficient, but there are also investors that don’t much care about the stock price but rather the overall performance of the company, whether its missions are being fulfilled, etc. – however, these are few and far between. For example, Berkshire Hathaway doesn’t tend to care as much about stock price as about cash flow.
They shouldn’t. The only time the board of directors is required to do what is best for the shareholders is during a buyout. Of course this isn’t what happens the largest shareholders want board members that represent only their interests. So companies chase only what makes large shareholders happy, and shareholders want the stock to be worth more than they paid.
Imagine, that YOU hold stock in said company. You put your hard earned money into the future of the company. Wouldn’t *you* like it if the company cared about the stock price? If they didn’t care, then nobody would invest in stocks and an IPO (initial public offering, or when a company starts selling stocks to the public) is a great way to raise money for growth and development.
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