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It is most common that stock price is affected indirectly by the workings of a company, in the sense that the success or failure of that company influences investor sentiment, which then influences the stock price through buyers and sellers.

However, stocks can also be affected directly. For example, declaring chapter 7 bankruptcy is one way this can happen. At that point, all stocks are worth zero (possibly certain shareholders may get some of the sold assets, but for a typical shareholder, zero is correct).

Also, the stock price can affect a business directly, in the sense that it allows the business to sell stock for a higher price, and use the funds to invest in the business.

Are there other examples of this?

Basically, I am wondering which "interactions" between stock prices and businesses strictly tie the stocks to reality. That is especially relevant given the possibility that the market currently does not reflect the state of the economy itself.

  • At least half of your question (effect of stock price on company) is addressed here. – nanoman May 22 at 0:40
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Corporate events that affect share price:

  • Increasing the dividend

  • Special dividends

  • Stock splits (traditional and reverse)

  • Acquisitions

  • Stock buybacks

  • Issuance of rights

  • Secondary offerings

  • Borrowing money to expand

  • Layoffs

  • Change in management

  • Accounting errors (restatement of earnings)

  • Fraud

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