[fulafel]

(quoting your quote) "Stock markets exist so that companies can raise money to fund their projects"

This is said a a lot but surely things like it just exist, and any purpouses we assign are stories. The majority of the effect on the world of the stock market seems to be what happens with existing stocks and not IPOs & share issues.

[perl4ever]

This is a popular thing to say, and it's something that people say a lot because they like to say it.

I don't know all the forms that companies file to issue stock in the US, but I think S-1 and S-8 are a couple of them. Lots of these are constantly filed with the SEC.

Yesterday, Monday, there were:

  40 S-1s (or amendments) which are registrations for issuing securities.
  23 S-8s (which I believe are registration of securities used to pay employees).
  11 F-1s (which are for foreign issuers of securities)
  12 S-6s (which are for unit trusts issuing securities)

At this rate, say there are 260 business days in a year, 86 x 260 = 22,360. I vaguely think that the total number of public companies in the US is like a quarter of that, so issuing stock appears to be a pretty common thing.

[fulafel]

I think getting into the numbers is the right idea. I wouldn't know where to look for the $$ volumes of issues/IPOS vs eg dividends or stock trades, if someone does please chime in :)

My gut feeling is that despite being common, issuing stock is still peanuts compared to the old stock trades/dividends.

[perl4ever]

I don't think the numerical comparison you want to make has any meaning at all, let alone something to do with the relative importance of the activities of trading vs. issuing stock.

The ratio of stock traded to stock issued can be anything from zero to infinity.

We could imagine having "high frequency trading" of car loans producing a huge volume and it wouldn't change the fact that the car loans exist because people need transportation.

[robjan]

The existence of a secondary market with lots of liquidity gives people the confidence to invest in IPOs. There would be a lot fewer participants if there was no secondary market.

[bhupy]

In the same post I linked, Matt Levine actually provided an example of exactly that happening to another similarly over-hyped company, AMC:

“In talking about GameStop, I have occasionally tried to tie the goofy stock-price dynamics to corporate finance. I suggested that maybe GameStop could sell stock at these absurd prices and use the money to, you know, be a better company. It’s tricky, selling stock at these prices, but in theory that’s what the prices are for: People are telling you that they want to buy your stock to fund your projects, so you might as well sell them the stock and do the projects.

AMC has done that! On Monday it announced that it had raised $506 million of equity (and another $411 million of debt) in various transactions that “should allow the company to make it through this dark coronavirus-impacted winter.” Good work. Even better, that same day AMC launched an at-the-market offering to sell up to 50 million shares into the market at prevailing prices, allowing it to sell opportunistically to any redditors who wanted to buy. Yesterday it announced that it had finished the offering and raised $304.8 million from that and a previous stock sale, at an average price of about $4.80 a share. Of course yesterday the stock closed at $19.90, so AMC would have done better to wait a day, but nobody’s perfect. When redditors are clamoring to buy your stock you should sell it to them before it’s too late; there’s no reason for the company to try to time the endgame perfectly.

Also yesterday holders of $600 million of AMC convertible bonds converted them into stock at a conversion price of $13.51 per share. Six hundred million dollars of debt, vaporized by Reddit enthusiasm. “In the absence of significant increases in attendance from current levels, there is substantial doubt about our ability to continue as a going concern for a reasonable period of time,” AMC warned investors on Monday; four days and a billion dollars later, there is somewhat less doubt. A week ago it was not crazy to think this company was doomed; now it is entirely possible that it will survive and thrive and show movies in movie theaters for decades to come because everyone went nuts and bought meme stocks this week. Capital formation!”

[sroussey]

AMC had previous filed to make those sales, btw, before the Reddit push. Wonderful timing.

GMC had not, and was in a quiet period. Not so great timing.