Buying stock allows companies to raise money, but after that?
You’re
almost right. The initial issue of shares (IPO) raises funds for the
company, but after that shares are traded in the secondary market, and
their trade does not affect the company directly. Their
price does affect the company’s financial standing and its ability to
finance the business though. There’s an expression “the tail wags the
dog”, which I think suits here.
This presence
of secondary markets makes IPO attractive, company managers strive for
that. Also, secondary market allows financial companies (various
investment funds) to accumulate capital, and sometimes that gets
invested in the “real economy”. So, there are positive “spillover
effects”. This is a decentralized mechanism, in which wealth is
accumulated and resources are directed to some productive (ideally) use.
For example, if you are an entrepreneur with an innovative idea, you’ll
go to a fund, which might make most of their wealth through speculative
trade, and they’ll be able to finance your business.
A
different centralized way is when the government decides into which
industries and how much to invest. This may be indirect support, for
example, a government may sponsor a business incubation fund by
providing capital and infrastructure (buildings), but the fund is
operated like a private entity.
Of course, any
country economy is a complex combination of various centralized and
decentralized mechanisms. They should reach their ideal goals, but in
reality something like the picture below happens, too:
An
emerging modern way to finance a business is peer to peer lending or
“crowdfunding”, where consumers and potential customers can more directly finance a business they like, with much less financial intermediation.
What an great blog keep sharing.SBI share price
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