Market price of the common stock is not affected only by the projected EPS, timing of the earning streams, riskiness of the projected earnings, use of debt and dividend policy. Stock prices are also influenced by different types of external factors. Mainly following four external factors influence the stock prices:
1. External constraints
2. Strategic policy decisions controlled by management
3. General level of economic activity and corporate taxes
4. Stock market conditions.
Management makes a set of long run strategic policy decisions working within the set of external constraints. Such external constraints are antitrust laws, environmental regulations, product and work place safety regulations, employment practices rules, federal reserve policy, international developments etc. Thus, management makes different types of strategic policy decisions like types of product or services produced, production method used, relative use of debt financing, dividend policy etc. under the control of external constraints. These strategic policy decisions, level of economic activity and corporate taxes influence in expected profitability, timing of cash flows and degree of risk. Finally, stock prices are affected by expected profitability, timing of cash flows, degree of risk and stock market condition.
1. External constraints
2. Strategic policy decisions controlled by management
3. General level of economic activity and corporate taxes
4. Stock market conditions.
Management makes a set of long run strategic policy decisions working within the set of external constraints. Such external constraints are antitrust laws, environmental regulations, product and work place safety regulations, employment practices rules, federal reserve policy, international developments etc. Thus, management makes different types of strategic policy decisions like types of product or services produced, production method used, relative use of debt financing, dividend policy etc. under the control of external constraints. These strategic policy decisions, level of economic activity and corporate taxes influence in expected profitability, timing of cash flows and degree of risk. Finally, stock prices are affected by expected profitability, timing of cash flows, degree of risk and stock market condition.
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