I understand that shareholder investors of a company want the company to be profitable so that higher dividends (or higher retained profits can bs used to expand business) can be paid to the shareholders. Is the company under pressure to have high profits (and thus be able to pay high dividends or retain the high profits to expand the business and thus produce potentially more profits) because if the company does not produce high profits that the shareholder expects - then the shareholders sell their shares and thus the share price drops? And it is bad for the share price to drop as - if the company needed to do a rights issue, then they would have to do it at a lower price and thus not raise as much capital as they would like compared to when the share price high ? Also, if the company is doing well as shareholders expects, then it means that the shareholders will more likely back the plans of the company and also agree to higher remuneration for the company's directors ? Do shareholders have the power to sack the directors whom they believe are the cause of company profitability not meeting what the shareholders require ? Also, with a higher share price - does it indicate the desirability of shares in the company please ? (e.g. high price may inidicate that the market believes greater expected profits in the future). So the higher the desirability (because more investors trade in the company's shares), then the better the company is seen in the market place which would attract more shareholders and customers. (Hence another reason for shareholder pressure on the company ?). Thank you
I would say that shareholders sell their shares if the company is not keeping its profits up to the levels of the main peer group or competitors, and that the share price goes down. It is indeed more expensive for the company to issue shares, but I wouldn't say that was the main issue for management. But if the price falls, the shareholders will look for an alternative management to put in place of the existing. Or a competitor will spot that the price is cheap, the shareholders are unhappy, and make an offer for all the shares. (Then boot the existing management out). Shareholders can do whatever they want really (sack / hire) but sometimes its hard to get agreement between so many diverse shareholders. There are bodies that lobby shareholders to fire and hire management, and to reject management remuneration plans, which sometimes helps shareholders act together. A high share price does indicate faith in the profit prospects and the management. Whether it attracts customers or not, I couldn't say - its probably not the biggest advantage. Perhaps its helps the brand a bit (eg Apple). The main advantage would be the fact that relatively few shares need to be issued in order to finance a takeover or an expansion plan.
