Why Is It Important For A Corporation To Maintain The Confidence Of The Stockholder?

554 words - 2 pages

It's almost like confidence is its own commodity and serious investors try to beat the curve and buy stock at a point just before confidence rises (leading to a higher market value for the stock).If confidence in a company's stock is perpetually high (Coca-Cola, Walmart), you canassume that investors won't see a relatively high return on their investment. Peopleinvest in these kinds of companies because they're confident that the company is astable investment. The buy low / sell high kinds of companies are investment risks anddepending on who you are (or when you buy/sell) you might be happy to see confidencefluctuate!That's the reason I see that share prices / volumes are not part of a company's profitmargin (net income): neither really indicate how much a return the company is gettingfrom the use of its assets. They're more indicative of market perceptions and forecaststhan an objective snapshot of a corporation's success.It is important for a corporation to maintain the confidence of the stockholder so they willcontinue to either buy, or hold the stock they currently own. Once a poor earningsreport comes out (especially one without a good explanation), the confidence of thestockholder can be lost. It is very easy for the stockholder to lose confidence especiallyif the industry that company is in isn't doing so well. By having quarterly reportingrequirements, and conference calls the company can try and keep the confidence, but Ihave to say I work in for an investment advisor and I was listening in on a call fromEnron (before they were exposed) and they just kept reassuring the stockholder thateverything was fine. This was 3 months before the...

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