How do stock and share prices affect companies?  

When people talk about the stock market, they’re typically referring to the practice of publicly listed companies selling a predetermined number of shares to interested investors.

Ultimately, listed companies do this as a way of generating income for the business, with the capital raised through share sales being reinvested into the venture to drive growth.

From an investor’s perspective, the traditional buy-and-hold method associated with the stock market enables them part-ownership in a company, although this rarely translates into any form of control or commercial decision-making capacity.

But how does this process work, and how do fluctuating stock and share prices affect individual companies?

What Happens When Companies Sell Shares?

When companies want to sell shares and generate income, they’ll first have to list as a public entity on a relevant stock exchange.

Then, stakeholders will determine the precise value of stock that they want to list for sale, before proceeding to sell token ownership in the company in the open market. Investors are then free to buy shares at the published price, with the money generated being made available to the business and existing shareholder agreement to redeploy as they see fit.

In the case of Eurotunnel’s much-vaunted stock sale in 1987, for example, much of this income was invested building and operating the channel link.

Interestingly, selling shares in a company often represents a cheaper way of borrowing money, especially when compared to a traditional bank loan. This was certainly true in the case of Eurotunnel, who would have had to borrow large amounts at relatively high rates of interest to fulfil their construction needs.

In instances where companies issue more than 50% of their stock for sale, the original owners may lose a controlling stake in their firm and could risk being taken over by one or a number of investors.

woman looks at share prices

What About Stock Indexes?

Investors will also be aware of stock indexes or indices, which often provide coverage of businesses in a particular industry, country or certain type of market capitalisation value.

In short, indices trading allows investors to buy into the index of companies, with such entities valued on the overall performance of a selected number of businesses. So, if one or influential companies listed on an index see their share price value decline, the same will happen to the broader performance of the index.

The most popular indexes include the FTSE 100, NASDAQ 100 and S&P 500, which typically feature high value and blue-chip stocks that offer a secure store of wealth for investors and potentially reliable dividends.

Certainly, being featured in such indexes affords businesses significant exposure and recognition, which can in turn hike share values further and drive increased investment in the business.

The Last Word

Ultimately, remaining listed on such indexes is one thing that brands can do to retain and grow shareholder value, but it’s far from the only measure that can be taken in this regard.

For example, businesses can innovate and continue to create new (and coveted) products and services to help boost their share value, while also remaining competitive in their marketplace.

Similarly, brands can enter new marketplaces, increasing their scope and turnover while enhancing their wider public profile in the process.