Why do companies care about their stock prices?
June 4, 2007 8:44 AM Subscribe
Why should a company care about their stock prices?
posted by sherlockt to work & money (18 answers total) 11 users marked this as a favorite
I'm sure this question will betray my utter lack of understanding of the stock market, but I have a hard time understanding why companies are so obsessed with their stock prices. My understanding of stock is that a company sells little pieces of ownership of the company in exchange for cash today. Once the stock leaves the hands of the company (and the company gets the cash it wanted), why should it care what the stock is worth?
I can think of a few possible reasons, but none of them totally satisfy me. . .
1. A company might want to guard against hostile takeover, and a high stock prices makes such a takeover more difficult.
2. A company has a pool of stock not yet issued, and high prices for current stock might bode well for future issues of stock (though the new stock would dilute the pool and bring the price down).
3. Stock price is an indicator of goodwill toward the company, so higher stock prices might mean better rates for loans and other types of investment.
None of these reasons, though, completely satisfy me. What am I missing?