
Ask HN: Why do companies care about their own valuation? - vpoulain
As far as I understand company IPO allows to raise huge amount of money. Once they raised this money why do they care about share value on a daily basis? This valuation is different than cash flow and considering it too much deeply impact long-term strategy, no?
======
cbanek
Since equity based compensation is a large part of many equity packages, if
the stock price was falling or at least not rising, that would be a reduction
in salary. Companies like equity based compensation because of tax benefits
and it generally seems cheaper since they can always issue more stock.

------
badrabbit
Loans,future investment loss, dividend loss to shareholders,C suite bonus and
job performance is measured by this,etc...

You wouldn't want to give business to a company that has been losing value
continually right?

------
blueterminal
Imagine if you're the CEO of the company and you own 100000 shares of it. Then
your net-worth between 100$/share and 120$/share will differ by $2 million.
Quite a difference, isn't? And I think most board members hold certain amount
of company's stock, and usually most people want their net-worth to grow as
much as possible, so they try to do certain things to increase the stock
price.

That's one of negative things about stocks in general in my opinion, because
people quite often have short-term (lasting a quarter or two) outlook.

~~~
pmiller2
> That's one of negative things about stocks in general in my opinion, because
> people quite often have short-term (lasting a quarter or two) outlook.

That could be easily fixed by requiring all executive and board members' stock
to be held for, say, 3 years after vesting before selling.

~~~
lberk
Has it really vested at that point then?

Or is it just a longer vesting period?

~~~
bruce511
I guess that depends on your understanding of "vesting" \- and my
understanding may be faulty.

As I understand it, if I leave the business before the vesting I get nothing.
When the stock vests it becomes mine.

A lock down of the stock then means I can't trade it, but it remains mine
(regardless of whether I stay or leave.) Once the lock is lifted I could sell
it.

So in that sense there's a difference, yes.

------
carloshpf
The main reasons have already been mentioned.. compensation, feedback to the
CEO, etc.. but an interesting one that I just saw, and I don’t know if it’s
possible, appeared on the TV Show Succession (HBO) where the family's stock in
the company (which they control but not by much) secures a loan that the
lender can call if the stock drops below a certain price.

------
shoo
Another angle to think about is the opportunity the company has to raise
additional capital after IPO. All things equal, if the share price offered by
the market is higher, it is cheaper for the company to raise additional
capital by selling additional equity. The company will usually also have an
alternative way of raising capital by taking on debt rather than selling
equity.

------
TheCoelacanth
Shareholders care deeply about valuation because it puts money in their pocket
when the valuation rises.

Shareholders are the CEO's boss.

------
pixiemaster
It’s a feedback to the CEO how good their company is. Buy putting a price on
it (valuation), she/he gets feedback on how she/he is contributing to value
increase.

in theory this factors in all aspects, e.g. more than just revenue, because
it’s a comparison with other companies as well.

reality IMHO: it’s bullshit to manage short term valuation only.

------
BOOSTERHIDROGEN
Same thing with stock market, I couldn’t understand that people swapping stock
amongst themselves. No money going into productive use

~~~
blueterminal
You buy a portion of the business. Why wouldn't you want to do that if you
have some cash and see a nice deal? It's a beautiful system.

