Question

In: Economics

Why do companies want to offer stock? What benefits do they receive? Why is it important...

Why do companies want to offer stock? What benefits do they receive? Why is it important for a company to monitor its stock price, even after they sold off shares (meaning they no longer make money off secondary sales)?

Explanations should be a minimum of 5-6 sentences each.

Solutions

Expert Solution

Companies want to offer stocks because the companies want to raise money & funds from the public. It helps the company to raise the funds for their investment projects and expansion plans. The issuance of stocks, don’t require to pay the interest rates and companies can work without the liquidity concerns. Besides, the companies also issue stocks to their employees. It is done to prevent the agency conflict. It helps the owners to align the interest of the managers with the interest of the organization. It brings motivation to help the organization grow and achieve the goals.

Precisely, the company receives following benefits:

1. Getting funds for the projects

2. No any mandatory liability to pay the interest and or dividend to the shareholders

3. Good to get the funds when the business cash flow in cyclical in nature.

4. It gives voting rights to the shareholders and good diversification can be done to prevent the hostile takeover.

5. It is used to prevent the agency conflict in the organization.

It is important to monitor the share prices, because it reflects the demand and supply position of the company share. A higher demand of the share, means the company is doing a good performance in the business environment. It leads to the demand of the company’s share and the price of the share rises. Besides, the share should be distributed in a diversified manner so that any case of large number of purchase of the shares for the hoarding purpose is tracked and prevent in collaboration with the stock exchange. Hence, the stock price is a mirror image of the company’s performance. Hence, it needs to be tracked and monitored on a regular basis.


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