The stock price has become a key measure to evaluate any company. If you look at any organization the only way to know or validate its financial health is of its stock price.
A good share price and sound record of price variations reflect that the company’s financial health is stable.
But the best part is that the company itself never actively participates in trading, rather traders trade and define the company’s health through the time span.
I know the very first question that comes to your mind is who is going to benefit from price hike?
Is it like that, only traders who exchange their share at a higher price are in profit?
It is obvious that if you sell a share at price higher than what you bought at, you are going to book profit. But then the confusion arise, why is the management of company worried about the performance of share you trade.
They even don’t receive money from the trade. Rather their purpose was solved on the very first day when they issued their shares through IPO.
We know that any company who wants to raise capital organizes an IPO which we call as the primary market.
The place where you and I trade is the secondary market. It forms a place where we exchange shares among different traders through a broker, while the original capital was raised by the company through IPO.
Click Here to know IPO allotment process in India: The reason you missed the chance to book your seat.
So, basically, these 5 factors make company worry about their stock.
1) Management is the real owners.
It is said that the management is the real owner. This is because they own a major portion of outstanding shares. And don’t you think it is natural if they own a major portion of shares they won’t allow their shares price to go down.
So they have a monetary interest which makes them concerned about market share price.
2) Fear of takeover
When a company goes public unlike those of private company, they have chances to be taken by other companies. Basically, if a company is found to be weak and struggling from financial crises, competitor companies look for such opportunities and take the advantage by a takeover.
This makes it important for management to showcase good financial health in their balance sheet which in return help them to maintain stable share price. This is also one of the reasons why management decides to issue bonus or dividend which make their investors happy.
3) Dominance over others
Ego a very natural character of any human and so is same with people in the management of a company. They feel superior and rank themselves at up among their competitors. This helps them to maintain prestige and reputation in the market which is ultimately beneficial for their reputation.
4) To impress lenders
Any lender before lending capital to any company check it’s background whether is it worth of lending money or not. To do this the only way comes is to check their past history in share market.
Having a reputable image among investors helps a company to approach easily to lenders and raise funds.
5) Can be helpful for secondary offering
With good past, record management can remain assured that they can raise capital in a huge amount from the market from secondary offering as investors won’t hesitate to invest in a growing company with the sound financial record.
So the bottom line is there is quite a few reason which makes share price a major concern for management of a company. And for this, they also provide leverage to investors like dividends and bonus. All you need to do is think before you invest. Don’t get influenced with irresistible offers, rather identify the key points and invest in companies that are worth of your investment.