Issues in financial management Essay Example | Topics and Well Written Essays - 2000 words - 1

Issues in financial management - Essay Example So firms make effort to keep their share price high, otherwise some other firm might be able to acquire a huge number of their shares and be successful in a hostile takeover (Metafilter) . A hostile takeover will result in the current management being dissolved by the company taking over. Progressive companies are always looking for new projects and opportunities, and to pursue them capital is an essential ingredient. Companies want to raise the price of their stock for future issues of stock (Investopedia). So in future when companies raise capital through stocks, they receive large amounts of premium; moreover even when it borrows, firms charge less interest on credible debtors, so it also helps in raising funds cheaply. Companies are concerned about their market capitalization; it refers to the size or worth of a business enterprise and can be calculated by multiplying the current market price with the number of shares outstanding. If the worth of the company falls, investors will be less interested in it and the company will lose its status (Henneman). Employee stock option/ownership is again a strong motivation for raising share price value for management. Employee stock options are a form of non-cash benefit that gives an employee the right to buy the company’s share at a particular price at a future date (Balsam, Chen and Sankaraguruswamy). So management puts an effort to raise the share value above that value to take benefit of this option. Moreover the management raises the stock price to please their stockholders and to maximize their value. The reason is that the shareholders elect the board of directors which elects the CEO. So the CEO has to please the board which then wants to please shareholders to get re-elected. Share price represents a number of aspects of a company. These aspects include company management, business’s current and future earnings and net assets, goodwill in the market, future outlook, credibility etc. The present