Firms raise capital from investors by issuing shares in the primary markets. Does this imply that corporate financial managers can ignore trading of previously issued shares in the secondary market?

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Business

Blanchard

20 April, 18:10

Firms raise capital from investors by issuing shares in the primary markets. Does this imply that corporate financial managers can ignore trading of previously issued shares in the secondary market?

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Johnny Weber · Answer 1

Finance managers constantly monitor shares on the secondary market for two main reasons.

1. Share performance on the secondary market gives insight to how the public perceives the company. For example when share prices are going down it shows lack of confidence in the company. The manager will need to identify areas of weakness and solve them to restore confidence.

2. Secondly when shares are doing well on the secondary market, investors are encouraged to buy newly issued shares. They stand a good chance to gain, and when they want to dispose of shares they can easily do so.