Advantage of a higher share price?

[GG999]

I think this is an area that I don't understand so I come looking for help

I was wondering what the effects are on a company of a large increase or decrease in it's share price. Why are many companies very careful about keeping shareholders on-side, for example trying hard never to cut dividends.

So far my thinking is - if a company needs to raise capital by issuing shares then a much higher share price is obviously very good. Also, a very low share price might result in the company being more vulnerable to a takeover.

What are the factors that I've not been able to think of?

 

[skc]

I think this is an area that I don't understand so I come looking for help

I was wondering what the effects are on a company of a large increase or decrease in it's share price. Why are many companies very careful about keeping shareholders on-side, for example trying hard never to cut dividends.

So far my thinking is - if a company needs to raise capital by issuing shares then a much higher share price is obviously very good. Also, a very low share price might result in the company being more vulnerable to a takeover.

What are the factors that I've not been able to think of?

Personal incentives for the management and board. They are often large holders of the stock, they often have large quantities of company options, and their remunerations are often linked to share price performance against a benchmark or total shareholder return threshold.

There is also the 'aura' (or bad smell) effect. A comapny's activity can be indirectly affected by the share price performance. Say a mechancial parts supplier's share price is crashing - other businesses may shy away from dealing with them in fear of some problems. This can then becomes self-fulfilling.