nextbigthing
30-09-2013, 10:56 PM
Hi,
Why does a company care about its shareprice?
Using an example, say a company worth $100m goes out and lists on the NZX exchange creating 100m shares worth $1 each. The original owners of the company now have no remaining holding and the shares are all owned by individual private investors.
The company keeps on trading succesfully but something happens and the shareprice tanks to 50 cents. This is where my question lies, why would the company care? How does it effect the company? They can just continue on as per normal, they've got their $100m and don't care if the investors now have technically have half what they started with. Am I right in saying apart from the reasons listed below, they actually have no obligation to maintain shareprice and it's only morals of a decent person or the reasons below that would will them to do so....
Reasons I can think of to maintain shareprice in this case (non exhaustive)
Directors have personal interest - ie own shares
Company retains an owning of itself eg owns 10% of itself
Future capital raising would be hard with a bad reputation (company or managers)
This 'reputation' may then start to affect core business
Ie What I'm getting at is, what's to stop a company saying, 'well we've sold out to the investors now, we really don't care what happens to the shareprice because it's not our problem!'
There seemed to be at least a couple of cases on the NZX recently were shareprices were tumbling, yet management were quite happy to quiet and just let it happen, much to the understandable dismay of angry posters on some threads.
Is there some sort of protective legislation? If not then checking to see the holdings of management in the stock certainly becomes very important!
Cheers,
NextBigThing
Why does a company care about its shareprice?
Using an example, say a company worth $100m goes out and lists on the NZX exchange creating 100m shares worth $1 each. The original owners of the company now have no remaining holding and the shares are all owned by individual private investors.
The company keeps on trading succesfully but something happens and the shareprice tanks to 50 cents. This is where my question lies, why would the company care? How does it effect the company? They can just continue on as per normal, they've got their $100m and don't care if the investors now have technically have half what they started with. Am I right in saying apart from the reasons listed below, they actually have no obligation to maintain shareprice and it's only morals of a decent person or the reasons below that would will them to do so....
Reasons I can think of to maintain shareprice in this case (non exhaustive)
Directors have personal interest - ie own shares
Company retains an owning of itself eg owns 10% of itself
Future capital raising would be hard with a bad reputation (company or managers)
This 'reputation' may then start to affect core business
Ie What I'm getting at is, what's to stop a company saying, 'well we've sold out to the investors now, we really don't care what happens to the shareprice because it's not our problem!'
There seemed to be at least a couple of cases on the NZX recently were shareprices were tumbling, yet management were quite happy to quiet and just let it happen, much to the understandable dismay of angry posters on some threads.
Is there some sort of protective legislation? If not then checking to see the holdings of management in the stock certainly becomes very important!
Cheers,
NextBigThing