If a company historically matches 401k contributions in company stock, then decides to match with cash instead, what would be the long term effects on the company stock? Would this indirectly hurt the stock in the form of the company not having to buy back as many shares in order to fund 401k accounts?
according to the Pecking Order Theory, managers that finance projects (match 401k) or raise capital via internal sources like existing assets/cash have a more “valuable” company than one that decides to finance projects by issuing more stock. i say its a positive sign that the company no longer needs external financing. either that or they are waaaay diluted. i dont know. what happen with Joey and the Bagel? why do i keep thinking about that?
But when they match the 401k with company stock isn’t just coming from treasury stock and not newly issued stock? If that is the case wouldn’t all be coming from existing assets anyway since the company would have to buy back shares on the open market to fund the treasury stock account? Or am I way off base? On a side not how would one go about determining if a company is “waaaay diluted”?
MT327 Wrote: ------------------------------------------------------- > But when they match the 401k with company stock > isn’t just coming from treasury stock and not > newly issued stock? If that is the case wouldn’t > all be coming from existing assets anyway since > the company would have to buy back shares on the > open market to fund the treasury stock account? > Or am I way off base? > > On a side not how would one go about determining > if a company is “waaaay diluted”? well the stock value doesnt always reflect the value of the company so when you ask how this would “hurt the stock”, its different that asking how this may affect the long term value of the company, or what you think the long term value of the company is. “waaay diluted” the way i meant it is a subjective opinion one could have on the stock with some reasonable research and analysis completed beforehand. its possible. its an interesting question to me tho so i would like to hear other opinions.
Isn’t this called the “Signaling Effect”? SkipE99 Wrote: ------------------------------------------------------- > according to the Pecking Order Theory, managers > that finance projects (match 401k) or raise > capital via internal sources like existing > assets/cash have a more “valuable” company than > one that decides to finance projects by issuing > more stock. i say its a positive sign that the > company no longer needs external financing. > either that or they are waaaay diluted. i dont > know. what happen with Joey and the Bagel? why do > i keep thinking about that?
I’d rather have the company match with cash. As a pre-existing shareholder, your stake in the company will continue to be diluted with the company issuing more and more shares over time. I don’t see how anyone could say that if the company does buybacks it will offset this and stock/stock option grants because the reality is most company’s outstanding number of shares increase every year as shown in their financials. That’s just my take. waaaaaay diluted - just look at the major bank names taking part in the govts bailout.