Aside from IPOs, it seems like when you invest in the , your is only going to other stock traders, not the company you’re investing in. Does buying a stock give any benefit to the company you’re investing in, or do just change hands and the company being traded gleans no benefit?

 

  • VinTek 1:02 pm on August 30, 2010

    Yes, a company absolutely benefits when it’s stock price goes up. When the price goes up, so does the company’s market cap. One benefit of this is that the company can use it’s stock to purchase other companies in the form of a stock swap. The higher the stock price, the fewer share the company will have to offer to the company being acquired.

    Other benefits would be a higher price should the company decide to issue additional shares. A rising share price also allows the company to hire talent in exchange for options, thus reducing the actual cash outlay to get top people. There are lots of benefits, but I think you get the idea now.

  • ILYA1113 1:02 pm on August 30, 2010

    Alot of people have trouble with this concept and it took me a while to figure out when companies acutally get money off a stock. Heres what you have to know:
    When a company is public not all of its shares are traded publicly. So when your buying a stock your buying public stocks. For companies like Microsoft who have so much money they shouldn’t really care where they stock is because stocks are used to rasie money. In order to raise money a company must build value in its stock, this is done by having good earnings and expectations, they way investors are willing to pay a higher price for each share. When a company wants some cash they have to sell parts of they non-public shares in the public market to get the cash. If they sell too much the price could go down so comapanies will do a buyback to get the price back up. Its all supply and demand.

  • Arbitrage 1:02 pm on August 30, 2010

    When you go out and buy 100 shares or whatever in a company, it doesn’t benefit them directly anymore. They got the bulk of their cash from the IPO.

    A single trade is unlikely to move the stock, but in general, if there are more buyers than sellers, the stock goes up. There is benefit from a higher stock price for future stock issues. It’s unlikely to see a secondary offering, but this does happen. If it does, then it’s "cheaper" to raise the same amount of cash because fewer shares need to be issued and there’s less dilution.

    Also, many companies will issue stock options all the time to employees. If the stock price is higher, the company provides more value to the employees "for free." The strike of the options might be higher, but the rising stock will make the company look like an attractive place to work.

  • Frank Castle 1:02 pm on August 30, 2010

    Yes.

  • rainfingers 1:02 pm on August 30, 2010

    You’re right, when you buy a stock the money goes to other traders, not to the company. But consider that the company is owned by all the people who own the stock (that’s the definition of stock).

    When company executives get excited about the stock price, it’s because they own a lot of it personally, and because they get paid a large salary to make the stock price rise. They’re effectively hired by the stockholders for that purpose.

  • andrew f 1:02 pm on August 30, 2010

    You are correct.

    In some IPOs, money goes to the company.
    In some IPOs, money goes to previous owners who are ‘floating’ the company on the exchange.

    Companies sometimes place additional shares on the market after they list on the exchange, but that is not the usual share purchase.

    If you are buying shares on the stock market, the money is (almost always) going to a previous shareholder, not the company.