I ask this question in the context of investing in "ethical" companies, as someone I know wants to do in order to support them. My understanding is that when you buy stock, you're just exchanging ownership of the company, and not actually helping the company by giving them money (unless it's an IPO or new stock has been issued).
In what ways directly (if any) or indirectly, do you help a company by buying into them?
Would you consider the owner of a company to be supporting the company? If you buy stock in the company you own a small part of that company. Your purchase also increases the share price, and thus the value of the company. Increased value allows the company to borrow more money to say expand operations.
The affect that most individuals might have on share price is very very small. That doesn't mean it isn't the right thing for you to do if it is something you believe in. After all if enough people followed those same convictions it could have an impact on the company.
As others have said, it simply makes you a part owner. Even if you have ethical objections to a company's behavior, I'd argue that investing in it and using the proxy votes to influence the company's decisions might be even more ethical than not investing.
We're not "helping" the company in a comparable sense to donating money to a non-profit. As you wrote, investing in a company deals with ownership and in a sense, becoming a part owner of a company, even if it is a minor ownership, indicates that we sense it has some sort of value, whether that's ethical, financial or tangible value. As investors, we should take responsibility and ensure that our voices are heard when voting occurs (sadly, not too common).
EDIT: @thepassiveinvestor makes an excellent point that this paragraph only applies to IPOs: Keep in mind, when we purchase stock in a company, that money is used for business purposes. It also signals value to the market as well, if enough money or enough investors buy the stock.
Some of the answers to this question are not correct. Generally, when an investor buys shares in a company, they are buying the shares from another investor. The transaction has no effect on the company.
If many investors purchase shares bidding up the price of the stock, that will help the executives of the company that have compensation plans at least partly based on the share price.
As others have mentioned, if the company sells additional shares of stock, the existing price of the stock matters. However, lately companies are much more likely to repurchase their stock than sell more shares. Repurchasing boosts the price of the shares and selling more shares is dilutive.
This subject has received attention lately with the creation of ESG funds that only invest in companies that pursue policies that help the environment, or society or have more minorities and women on their boards of directors. So, do these funds actually help the companies and are investors in these funds helping the companies? You could argue this point from a number of perspectives, but from the perspective of performance to date the answer is a resounding NO.
Companies are not human beings. They do not have hopes and dreams, feelings or aspirations. They cannot really be helped or hurt because that would require some objective measure of "goodness" for a company. And if you try to construct such a measure, you will rapidly get tangled in contradictions.
Companies exist to benefit their owners. Companies are structures humans create to provide particular benefits to particular human beings. It is really only meaningful to talk about something hurting or helping a company in terms of whether it provides the benefits the company was created to provide.
Say my car breaks down. It doesn't help my car to fix it. My car doesn't care whether it works or doesn't and isn't, in any sense, better off if it's fixed. But I own a car to get around. And if my car doesn't help me get around, that's a meaningful way in which the car is "worse". And something that helps the car help me get around in a meaningful way helps the car.
When you buy shares of a company, you push the share price up. The helps the company's stockholders get more benefit from their ownership in the company. And that is the company's purpose.
So just like fixing a broken car helps the car in the sense that it makes the car help the owner more and that's the car's purpose, buying shares of a company makes the company help its owners maore and that's the company's purpose.
Just because I have not seen it anyway in other answers, let me add that I think that the supporting effect strongly depends on how many people are doing it in a coordinated way. There would need to be a critical mass of similarly minded, organized people to actually make an impact.
You say you want to support some companies for some not-necessarily profit related reasons. You might be able to simply donate money to them somehow as a more direct way, but maybe you want to know if investing in the stock market is a more efficient long-term support for some definition of efficiency like at least getting your money out of it or even profiting and supporting at the same time.
If it's only you and your means are limited, you will get a tiny ownership, which is not really useful for you, your order will make the shares of that company a tiny bit more expensive. The seller who sold his shares to you for the slightly elevated price will make a win. But apart from that not much happens.
If however, there are lots and lots of similar minded people, who would pool their financial resources, they could strongly influence the share price, gain substantial parts of ownership and possibly even take over some companies completely.
While a higher share price is indirectly good for the company (other answers), owning it is arguably much better. As owner you could "support" the company in the sense of letting it do whatever you felt the company ought to do. If for example you decided, you don't need dividends from the company, you would earn less, but the company would have left more means to re-invest in their business. This would undoubtedly support the company but would also mean that you earn less on your invested assets.
Why do all the hassle? You could also just invest your money in the whole market and donate part of the returns to that company (some kind of charitable foundation or so). Should result in roughly the same net support if the company was making an average profit. Owning a company would give you a bit more influence and protect this company more against adversarial developments, but it's also more risky than investing in the whole market.
To summarize: Only do this with others together and aim for small companies (not Apple or Google). Aim for control of ownership and think about what this means for you and how you can then support this particular companies better. Otherwise aim for creating a charitable foundation, invest in the whole market and use the ongoing profits to give to companies to your liking or simply give directly to companies you want to support.
you're just exchanging ownership of the company, and not actually helping the company by giving them money (unless it's an IPO or new stock has been issued).
You're helping the company by bumping up its stock price. It means if they choose to issue new stock, they get a better price of it. This indeed supports the company.
Also, the increased stock price may increase the likelihood of the company issuing new stock. The more expensive the company stock is, the better the chances of getting new money from stock issues without excessively diluting the ownership of the existing shareholders.
So, yes, you're supporting the company. You should choose the companies you support wisely, not investing in anything unethical.
