Question

What information might a changing stock price give to managers?

Answer 1

Ans:- The few information that changes in the stock prices might give to the managers are:-

(1) The most basic reason that affects the change in share price is the basic law of economics i.e demand and supply. when the demand for the shares of a particular company increases its share price goes up and when the demand decreases the share price drops. If the share price of a particular company increases that means its demand has increased.

(2) Investors trust: - when investors are bullish then demand will rise increasing the price and if they are bearish then demand will decrease leading to a decline in the share prices. If the share price of a particular sector or company decreases then the managers should understand that they are losing the investor's confidence.

(3) Dividends:- If the management announces the dividends then the managers should expect the share prices to go up and if they cut the dividend for a particular year the managers should expect the prices to down.

(4) Management Profile: Management profile also plays a major role in the price movement. If the track record of the management is good then the managers will not expect a rapid plunge in share price at the financial crisis or economic crisis.

(5) Economic Crisis: If there is a financial or economic crisis in the country or a slow down in a particular sector then the managers should expect the prices to go down.

(6) Political scenarios: Political scenarios of the country leads to the price movement. If there is extreme fluctuation in the share price after the change in the government policy then the managers will interpret that it has happened due to the political scenarios

These are the basic information that managers can draw from the price movement of the stock prices.