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I have few questions regarding how the shares are bought & sold in the market & how to make share price more marketable.
1) Is it true that if the company is doing bad or the company has changed its policy regarding dividend payout and therefore few people are buying & selling the shares of the company then the DEALER in the stock exchange will lower the market value of the shares to make it more marketable & affordable for the more people to buy & sell the stock?
For example:
If a company has issued 10,000 shares in the market to raise $100,000 cash there will be only 10,000 shares in the market that shareholders can be bought & sold. If people want to buy more shares of the company but nobody is selling the shares to them in the market then is there any way they can ask the company to issue more shares?2) And the more shares that company is going to issue it is going to reduce the new market price of the shares & more people will be interested in buying them.
For example:
If a company wanted to raise $100,000 from shares issue by issuing 10,000 shares with share being priced at $10 each then since the company has raised $100,000 it is the end of the company. And these 10,000 shares will be traded on stock exchange based on their market value which will be bought & sold by the shareholders. BUT if the company issue new bonus shares of 1000 which is used to lower the market value on the stock exchange so that it will be more affordable price for shareholder to buy & sell the 11,000 existing shares which will bring down the each share price to $9.09.3) DEALER on the stock exchange will earn the profit based on the price at which people buy the shares and at the price shares are sold.
1. Yes – if there are fewer people buying than are selling (for whatever reason) then the dealer will lower the price.
An individual shareholder cannot require the company to issue more shares. If they want more shares they will have to be prepared to pay a high enough price for other shareholders to be prepared to sell their shares to them.
2. Yes – if shareholders are given bonus shares (so free of charge) the market value per share will be lower. That is no problem for shareholders because although the price per share is lower, they will have more shares. Companies often do this when the share price is getting very high because getting the price per share to be lower means that people are then more likely to want to trade in the shares.
3. The dealers earn money by charging people buying or selling shares through them. It is usually a % of the value of the shares that the people are buying or selling (usually with a fixed minimum charge). However this is irrelevant for the exam in calculations (we ignore these transaction charges in the exam) but could just be relevant in an answer to a written question.
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