Well, I am interested in thoroughly understanding why it is key for a corporation to try to increase its share price. It seems obvious that it should, but what are the main reasons (imagine that employees are not shareholders)? What is the real impact if the share price decreases?

Thanks for your replies to this apparently very basic question.

Best regards,

F81

I'm guessing if a companies share price decreases their value as a company also decreases. The real impact is mostly on the investors. They lose their money they invest in a company because a companies profits have decreased.

Hope that answered your question!

This is a really good question... and one which is at the heart of the economic problems we are facing now.

Bottom line is the markets are there to aid in the liquidity of capital flow. Basically this means you are more likely to be able to raise money as a company if the people buying a share in your business have an easy way of buying and selling that share....

The share that you buy is intended to be just that, 'a share' in the profits of the company...

Problem we have seen in the markets over the last few years is an insatiable desire for companies to increase their profits, year on year. This is in order to increase the price of their shares, year on year. If, as a company, you can show good 'dividend growth' as well as good 'capital growth' (by virtue of a rising share price) then you are able to attract more capital, thus buying more business, increasing dividend growth etc etc....

Now the keen eyed amongst you will see the flaw in this plan..... Dividends and Capital growth cannot go on forever..... hence the mess we are in now...

The basic answer to your question should be 'it isn't key for a corporation to increase its share price', because 'profits, dividends and safety' should be the primary objectives of the management that shareholders employ to shepherd their investment.

Sadly this fell apart over the last few years.... if your CEO's bonus is based on how much he increases the share price you can bet that things are not going to end well....

My two penneth......