When a co. sells its shares,why now the Co must try 2 increase the stock price?when holders make profit not Co
And when the price of a Co falls,how does it affect 2 Co?and management is afraid of this event?
Answer:
When you buy a share of a company, you are investing money into that company. It means that you are giving them money to use for their company. You own a part of it because you gave them money to use for making that company bigger. If that company doesn't create profits, making your investment grow, then you have a bad investment, making it worthless to you because it will never increase in value. That makes people sell their stock in that company. Without money being invested in the company, the company loses money and they go bankrupt. That is why companies try very hard to increase profits, so that the shareholder's stock value increases and they are happy enough to not sell their stock and move on to another company.
The management of the company often owns shares too. They can benefit from the company's stock price increasing. Also, if the company wants to sell new shares to the public its helps if the existing stock price is high (they get more money from the second sale of stock).
There are a couple big reasons why a company would try to increase its share price. One is that the stockholders can change the people on the board try to oust a bad ceo if he underperforming so if you the company is not looking for its stockholders, oftentimes the stockholders will take into their own hands, as many wealthy stockholders have recently tried to do to get more out of the company. Also a lot of the executive pay bonuses are tied to certain targets that motivate them to achieve that if achieved would certainly lead to higher share prices.
If your share price doubles from $1.00 to $2.00 you can use that extra dollar to buy your competition.
A few examples:
Adidas bought Reebok
Nike bought Converse
Exxon bought Mobil
Conoco bought Philips
MTV bought Blockbuster
General Electric bought Universal
Before Adidas was making $10.00 and Reebok was making $5.00
After Adidas is making $15.00
On the other hand if your share goes down you cannot buy any companies with your shares and you disappear.
If you are the CEO you get fired.
If you have 2 plants and you close one and move the production to the other plant the Manager of the plant closed is fired and the Manager of the plant still open gets a raise.
I hope this helps.
If you need a more detailed explanation let me know.
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