As I understand it, once a company raises, say $5 billion in an IPO, the shares are sold and they get the money.
The shares are already with the public now. Why is it so important for public companies to grow their share price further every quarter? Why not focus only on the final profit margins?
In: Economics
1. A publicly traded company has a fiduciary duty to make a good faith effort to return value to investors. Raising funds in an IPO and then ceasing to care and folding would open up all manner of civil and potentially criminal suits.
2. The CEO is accountable to the board of directors and the board of directors are accountable to shareholders. Allowing the company to fail would mean being promptly fired.
3. The founder, members of the board, CEO, and other high level employees will likely hold significant amounts of stock and receive further compensation in stock causing their personal financial interest to align with the company and fellow shareholders.
4. New shares can be issued with board approval to raise additional capital if deemed appropriate. Tesla for example has issued approximately 200 million new shares (adjusted down to if no splits occurred) since their initial approximately 100 million shares at time of IPO.
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