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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?

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    This isn't quite an answer, so a comment. Think of it this way, too: let's say you are determined to invest somewhere. And you think companies vary in degree of ethics. So, if you buy stock in "Evil Corp.", would you then also want to boycott them or encourage others to? Or would you want them to succeed big? The point is, you would have an ethical conflict of interest as a part owner. Whereas when you buy shares of "Good, Inc.", you would want them to succeed, you would feel fine promoting them.
    – Chelonian
    Dec 30, 2012 at 22:45

5 Answers 5

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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.

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    A purchase doesn't necessarily increase the share price. If I buy shares at a lower price than the last trade then you could say I've devalued the company (however briefly). The OP is correct in saying that stock has just changed hands, so if the price you buy at is lower, its hard to argue that your adding value to the firm. Dec 31, 2012 at 8:38
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    @thepassiveinvestor It is not hard to argue at all even if you buy at a price lower than the current share price your purchase supports the company because if you didn't buy at the lower price the seller would have had to lower the price further or not sell the shares at all. In larger companies that are regularly traded the seller not being able to sell would lead to lower share prices.
    – stoj
    Dec 31, 2012 at 20:14
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    Well reasoned, I like your style Dec 31, 2012 at 22:52
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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.

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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.

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    +1 for the first paragraph. The second paragraph is only relevant for an IPO. In the secondary market there's no such thing as 'if enough investors buy the stock', for every buyer there is a seller. Dec 31, 2012 at 8:41
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    @thepassiveinvestor: That's wrong; it applies to all cases where the company authorizes and sells shares. The IPO is the first such case (hence the word initial) but companies can sell additional shares subsequently to raise additional capital. You are correct that it doesn't apply to reselling (secondary trading).
    – Ben Voigt
    Jan 9, 2020 at 15:25
  • @BenVoigt Exactly. The 'I' in IPO means "initial", as in, not final.
    – JimmyJames
    Jan 9, 2020 at 17:34
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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.

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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.

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