The following statement was made at a recent company board meeting: “We (the company) did receive...

The following statement was made at a recent company board meeting: “We (the company) did receive a good price for our shares issued at the initial public offering (IPO). Thank heavens we, as directors, do not need to worry about the share price in the future as is the shares are traded on the secondary market.” Do you agree with this statement? Explain.

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Expert Solution

Hello

I have a strong disagreement with the statement.

Although, receiving a good price of the share at the IPO is very necessary but the responsibility of management of the company is not just to get the good price of the stake sale to initial investors but the primary objective of management of the company is wealth management, i.e. managing the wealth of the shareholders of the company, which means maximising the market price of the share so as to benefit shareholders of the company and to maintain a steady and/or growing earnings per share.

Hence, it is very much important for the management to look up the management work very sincerely so as to take the company to the new heights and maximizing the market price of the shares of the company in the secondary market, which in turn is the present value of the future benefits from the company.

Hence, the management is wrong in thinking so.

I hope this clears your query.

Do give a thumbs up if you find this helpful.

jeff jeffy answered 1 year ago

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