> If shares of companies are valued at fair prices it means that the finance departments for that companies can raise more capital.
This only true of companies that were underpriced. Overpriced companies, either because of hype (Pets.com), fraud (Enron) or other reasons (maybe Jim Cramer issued a buy) do not benefit from a fairer price.
>> companies can raise more capital.
> This only true of companies that were underpriced.
You mean over-priced?
because if a company is underpriced, they cannot raise capital as easily, since each share they raise would be underpriced, and thus the existing shareholders actually _lose_ value.
An overpriced company is one where raising capital (via equity offering) is worth doing. If a company was under-priced, it would actually make more sense to do buybacks instead.
I agree with your point, but you misread my statement. We were talking about whether a company would have an easier time raising money once they were correctly priced.
For the reasons you listed, it was hard for the underpriced company to raise capital and too easy for the overpriced company. But those distortions go away once it is fairly priced.
This only true of companies that were underpriced. Overpriced companies, either because of hype (Pets.com), fraud (Enron) or other reasons (maybe Jim Cramer issued a buy) do not benefit from a fairer price.