Listed companies
Listed companies place great importance on the prices of there stocks as they reflect the company’s financial health. As a rule, rising share prices indicate a company’s positive aspect of the future. Although a listed company raises gets an infusion of capital through IPO, subsequent financing is influenced by its share prices. Consequently, continuous declining share prices deter the company from raising additional customers. In addition, a sharp fall in prices of a share relative to other firms in the sector, especially as a result of investors’ pessimism about the company’s prospect to maximize profit and provide reasonable dividends to customers, will make the company vulnerable to hostile takeovers, mergers or acquisitions. This would result in the loss of ownership of the firm. Also, top leadership pay is partly pegged on the company’s performance, and a sharp decline means its performance is in the wrong direction, meaning they will lose some benefits such as bonuses. However, it is unlikely that the above scenario will occur. When a company has repurchased its stock, the prices of shares usually increase rather than reduce. Share repurchase often indicates the company’s positive prospect of its performance, which often has an impact on raising the market price of its shares. In addition, it is unlikely that the company will experience the same price earning ratio, and such an assumption is misleading.
