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 '12 at 22:45

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. – thepassiveinvestor Dec 31 '12 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 '12 at 20:14
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    Well reasoned, I like your style – thepassiveinvestor Dec 31 '12 at 22:52

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. – thepassiveinvestor Dec 31 '12 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 at 15:25
  • @BenVoigt Exactly. The 'I' in IPO means "initial", as in, not final. – JimmyJames Jan 9 at 17:34

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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