[tanzam75]

The secondary market actually does serve a capital allocation function. It provides liquidity to the original shareholders, and to the people who bought from the original shareholders, and so on. This, in turn, encourages people to become original shareholders, and to provide capital to the company.

Illiquidity is one major reason that private companies sell for lower multiples than public companies of equivalent size.

[agilord]

Secondary market provides liquidity to the shareholders, but not to the company. There is no cash-flow to or from the company if you buy an AAPL or GOOG. As I've said: the cash comes to the company only if it decides to have another public offering.

I see where you are going with the "what motivates people to buy ownership" part, and it has truth in it. My grandparent response was to the part "moving real capital to real businesses in need". Many people don't realize that the secondary market is not moving capital to the business, only the public offering.