When asked to predict activity in the stock market, J.P. Morgan replied that stock prices would fluctuate. Modern finance theory ascribes meaning to these fluctuations. The stocks of successful, well-run, or lucky companies rise. Those of unsuccessful, misgoverned, or unlucky companies fall. While portfolio managers view the volatility of individual stocks as a problem to be overcome through diversification, corporate executives watch their stocks rise or fall with euphoria or dismay. A soaring stock price helps a company grow, by raising bond ratings and bringing in more money from additional share offerings. A plummeting stock price unsettles creditors and raises the dilution cost of each dollar of new equity.
Content: Article
Authors: Bernard Yeung, Randall Morck
Source: STERNbusiness (NYU)
Subjects: Economics, Finance
Authors: Bernard Yeung, Randall Morck
Source: STERNbusiness (NYU)
Subjects: Economics, Finance
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