Answer to Question #295310 in Finance for ayzaa

Question

What effect might a fall in stock prices have on business investmen

Answer 1

Stock prices represent the price at which a company's ordinary equity shares are traded on the floor of the stock exchange - a market for shares, bonds, and other exotic securities.

Stock prices have a profound impact on a company's operations. The rise and fall of stock prices affect the market capitalization of a company, and therefore, its market value - i.e. what the general public is willing to give to own the company at any point in time.

If a company is looking towards various financing its operations via share-influenced strategies - raising funds by issuing out new shares, or a merger where shares are exchanged for cash - a fall in stock price would have serious consequences for the company in question.

This is because a fall in share price reduces the value of the company's shares, thereby reducing the amount receivable upon the issuance or exchange of shares for cash.