<p>There are multiple channels :</p>

<ul>
<li><p>Debt: the cost of debt may raise significantly if the value of equity drops. Indeed, the lower the equity, the higher the risk of the debt, as the firm will have a higher gearing ratio (also called leverage). Thus, the firm might have difficulties to gain access to additional debt or face a higher cost. </p></li>
<li><p>Financing: A firm with a poor performance on stock markets might face difficulties to raise additional capital. Investors might indeed not be willing to buy the firm's stock if its performance is poor. Therefore the firm might not be able to raise additional capital.</p></li>
<li><p>Reputation: a decrease in stock price can negatively affect the reputation of a firm. Not necessarily with the customers but also with other stakeholders, such as the suppliers which could fear that the financial stability of the firm is not assured.</p></li>
</ul>

<p>So overall I would say that the stock price is mainly important to the firm as it is a strong determinant of the costs it will face when raising capital or debt.</p>

<p>Also, note that stockholders are owners of the firm. As such, they can compel the firm to adopt a more profitable strategy, if they so wish. Of course, it might be hard, but activist investors for example show that it is possible.</p>

CC BY-SA 3.0
2016-01-03T20:55:00.483Z
2016-01-03T20:55:00.483Z
Hector
<p>The purpose of a firm is to generate income for it's share holder. Two sources of profit are appreciation and dividends. Besides that the price fluctuations can mean that the firm is doing something right/wrong and stock holders are reacting accordingly... So the price reflects on the expectations of the future profitability of a firm.</p>

CC BY-SA 3.0
2016-01-03T18:28:11.940Z
2016-01-03T18:28:11.940Z
Dole
<p>It does not matter to the internal operations of the company.  </p>

<p>The exceptions would be financial channels.  For example, if the the company is actively buying, selling stock, or planning on buying/selling stock it is a big deal.  </p>

<p>It is a very big deal for mergers and acquisitions of course...even if the buyers as stocks are frequently used to buy other companies.  </p>

<p>It is also a very political statement.  If a company is wanting to borrow or refinance debt, a strong stock price can influence their credit rating favorably.  But rally the biggest reason is board politics.  A stock price tends to correctly with shareholders feelings for a company.  If low enough, there is a possibility that the board of directors and/or executives will be fired.</p>

CC BY-SA 3.0
2016-01-13T13:07:02.017Z
Many companies use options & shares as part of the remuneration of their employees: for them, the stock price matters a great deal to the internal operations of the company.
410 gone
CC BY-SA 3.0
2016-01-03T18:36:13.207Z
2016-01-03T18:36:13.207Z
user2662680
<p>As the title hints, why would the stock price matter for a firm? </p>

<p>Which are -in rough terms- the channels that a firm's stock price influence it?</p>

<stock-market>
Why does the stock price of listed firm matter for that firm?
Konstantinos
# Why does the stock price of listed firm matter for that firm?

(Asked by: username_0 on 2016-01-03)

As the title hints, why would the stock price matter for a firm?

Which are -in rough terms- the channels that a firm's stock price influence it?

**Tags:** stock-market


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## 3 answers

### Answer by username_1 on 2016-01-03. Score: 3

There are multiple channels :

* Debt: the cost of debt may raise significantly if the value of equity drops. Indeed, the lower the equity, the higher the risk of the debt, as the firm will have a higher gearing ratio (also called leverage). Thus, the firm might have difficulties to gain access to additional debt or face a higher cost.
* Financing: A firm with a poor performance on stock markets might face difficulties to raise additional capital. Investors might indeed not be willing to buy the firm's stock if its performance is poor. Therefore the firm might not be able to raise additional capital.
* Reputation: a decrease in stock price can negatively affect the reputation of a firm. Not necessarily with the customers but also with other stakeholders, such as the suppliers which could fear that the financial stability of the firm is not assured.

So overall I would say that the stock price is mainly important to the firm as it is a strong determinant of the costs it will face when raising capital or debt.

Also, note that stockholders are owners of the firm. As such, they can compel the firm to adopt a more profitable strategy, if they so wish. Of course, it might be hard, but activist investors for example show that it is possible.


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### Answer by username_2 on 2016-01-03. Score: 1

The purpose of a firm is to generate income for it's share holder. Two sources of profit are appreciation and dividends. Besides that the price fluctuations can mean that the firm is doing something right/wrong and stock holders are reacting accordingly... So the price reflects on the expectations of the future profitability of a firm.


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### Answer by username_3 on 2016-01-03. Score: -1

It does not matter to the internal operations of the company.

The exceptions would be financial channels. For example, if the the company is actively buying, selling stock, or planning on buying/selling stock it is a big deal.

It is a very big deal for mergers and acquisitions of course...even if the buyers as stocks are frequently used to buy other companies.

It is also a very political statement. If a company is wanting to borrow or refinance debt, a strong stock price can influence their credit rating favorably. But rally the biggest reason is board politics. A stock price tends to correctly with shareholders feelings for a company. If low enough, there is a possibility that the board of directors and/or executives will be fired.

> **Comments:**
> **username_4**: Many companies use options & shares as part of the remuneration of their employees: for them, the stock price matters a great deal to the internal operations of the company.  

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