Share Prices’ Influence on Company
Initial Public Offer (IPO) entails the first move by a company to sell a part of ownership or share to members of the public which gives them the feeling of owning the company. Only at this point is the deal between the buyer and the company. After issuing shares, business that transpires afterwards does not involve the organization directly and the transaction is between a seller and a buyer. Nevertheless, companies are not concerned about share prices. The health of the operations of a company is indicated by stock prices and stock prices’ growth may translate to an increase in the profits and the opposite is also possible (Wrench 41). The focus of this paper is on the analysis of the stock prices on a firm in the modern business world as well as why companies are concerned about transactions despite the fact that they are not affected by these transactions directly.
There is no reflective influence of stock/share prices on the image of a company. For instance, falling share prices can make securing bank loans hard and make attracting more investors difficult. Rising prices on the other hand attract the interest of investors while making bank loans easily accessible. After issuing shares, most firms get a good capital amount from public investors. If investors are not attracted by the shares of a company, they will not invest in it. This affects the company because it will struggle while trying to get the capital that it needs to expand its businesses. Consequently, the company might become stagnant without growth. Any business desiring to raise capital must have a higher price for shares because this shows that its profits and revenues are increasing. Investors will also be attracted by these prices (Edwards 14).
Additionally, during corporate acquisitions, companies consider buying other businesses. This can be done through the equity component. Usually, this happens when bank cash is not sufficient to facilitate such transactions. As such, the companies swap the shares of acquired businesses with the acquiring enterprise’s shares to establish a merger conveniently (Palmer 1).
As such, low stock prices cause a loss for the firm that has been acquired as well as more profit for acquiring a business. Therefore, for capital and equity reasons firms should be concerned about shares’ prices that are attracted by their operations. The company’s management has financial interest in an organization (Megginson, Scott, and Brian 463). As such, obtaining shares of the firm is usual for the management. Additionally, they will do everything possible to ensure high prices of the stock. In addition, stock implies ownership by investors and management as a task entails generating returns for shareholders. Otherwise results mean that the management is failing and the firm is not ready to portray this. The management is therefore aggressive in its effort to generate gains for shareholders and this influences growth, good management and success of the company (BankBazaar.com 1).
A decline is stock prices makes a Publicly Traded Company susceptible to a takeover which is not the case for a Privately Traded Company. Owners are responsible for managing privately traded companies and they hold shares closely. Nevertheless, shares of public companies are distributed to owners who have a sizeable base and they can opt to sell them any time. However, while accumulating shares with an aim of taking over the firm, potential bidders fail to make proposals to shareholders more so when shares’ worth is low. As such, companies whose stocks cost is higher and stable discourage suitors. Still in takeover equation, companies whose stock price is high have a higher advantage when it comes to merging and/or buying with other businesses. This is due to the fact that in most cases only shares are used in completing the transaction instead of cash (Bhardwaj 1).
A company’s prestige depends on the profit that it makes as well as its public exposure. A company that has large capitalization and market shares’ command has a higher coverage of analysts. Analyst reporting plays a very important role because it is open to advertising or publicity. This lets line managers, junior and senior managers as well as the corporation to introduce itself to the public. When a company becomes popular increasing the generated revenue and market share becomes easy. This also makes achieving objectives easy for popular companies (Wachs 1).
In a nutshell, shares/stocks prices is a concern for a company despite having a non-direct impact on a company. If stock performance is ignored by the management, the health and lifespan of a business as well as the management becomes questionable. It can also face threat from adverse consequences which include difficulties in generating capital and unhappy investors. The prestige of the company would also be reduced (Investopedia staff 1).
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BankBazaar.com.” How Corporate Events Impact Stock Prices,” Reuters. 2013. Web.
Bhardwaj, Sameer. “How Company’s Decision can Impact its Stock Prices,” The Economic Times. 2012. Web.
Edwards, David. The Relationship between Company Environmental and Financial Performance. London: Earthscan, 1998. Print.
Investopedia Staff.” Why Do Companies Care About Their Stock Prices?” Investopedia. 2011. Web.
Megginson, William L, Scott B. Smart, and Brian M. Lucey. Introduction to Corporate Finance. London: Cengage Learning EMEA, 2008. Print.
Palmer, Brian. “Why Does a Company Care if its Stock Loses Value?” Slate. 2011. Web.
Wachs, Nicole. “How Do Stock Prices Impact Companies”. TradeKing. 2009. Web.
Wrench, Jason S. Workplace Communication for the 21st Century: Tools and Strategies That Impact the Bottom Line. Santa Barbara, Calif: Praeger, 2013. Print.