Why should a company care about the price of its shares after the IPO?
The IPO process is essentially this: a private company going public notifies the government that they will be "going public" and (if succesful) they will sell a block of shares in exchange for some amount of money. The company is then listed on a stock exchange (NASDAQ, NYSE, etc.) and the new owners are free to buy/sell those new shares from each other at an agreed upon price.
However, consider this: all the buying and selling of those shares from that point forward is done between the buyer and seller, with no interaction with the original underlying company. For example, when I buy Microsoft stock (MSFT) or sell Google stock (GOOG), neither of those companies see any money from that transaction.
This begs the question...
why does a company care about the price of it's shares after the IPO?
There are multiple reasons, let's explore them:
Shareholder Satisfaction
This is the main reason a company exists. A company with an appreciating share price is increasing the wealth of its shareholders (on paper at least). Consider that shareholders control the board of directors and the board of directors controls the management. A company with an lagging share price over a prolonged length of time would likely face an upset group of shareholders, who could force change on the board of directors and in turn the managers themselves.
Hostile Takeovers
A lofty share price may fend off other companies from attempting a hostile takeover. In order to consider any potential acquisition offer, shareholders will likely only consider offers at or above the current market rate. A lagging share price could leave a company potentially vulnerable to be acquired under less than favorable terms.
Stock Options
Many companies incentive their employees to perform well by granting them stock options, sometimes in lieu of base compensation. Therefore, many of the same people who run the company are also owners of the companies, so it's in their best interest to have an appreciating share price so as to be handsomely rewarded. Similarly, the growing share price will continue to attract talent in the form of other employees.
Additional Share Issuence
A company may find it necessary to go back and issue another round of shares in order to raise capital. This second round will take place after the original IPO and is priced differently. The price of the companies shares on the open market will be a good indicator of how much can be raised during the secondary offering. A company that has neglected it's share price may find it difficult to raise additional capital at the price they want or they may be forced to give away a larger part of the company in order to raise the necessary capital.
Shares = Currency
In most circumstances, the share price of a company is a reflection of expected future earnings. High growth stocks such as Amazon (AMZN) or Netflix (NFLX) trade at large multiples to today's earnings on the basis that shareholders expect the company to perform that well down the road. Companies can take advantage of this mismatch by acquiring other companies and using their inflated share price to pay for the purchase.
Creditworthiness
A declining stock price may make it difficult to secure credit, as creditors want to be assured that the company is financially able to repay the borrowed money, More specifically, it's often indicative of slowing growth, excessive debt or other negative qualities.
The obvious reason for most companies to want a strong stock price is to increase the wealth of their shareholders, but remember that there are multiple other reasons that come into play beyond that. It may become disconnected from reality temporarily, however the share price is a reflection of the perceived financial health of a company and therefore has significant impacts on multiple fronts.
