Higher stock prices can lead to greater investment spending by firms because:

Question

Quizplus · Accepted Answer

When a company's stock prices increase, it becomes easier for them to raise funds through external financing, such as issuing new shares or bonds. This is because investors are more likely to invest in a company with a higher stock price, which means the cost of external financing becomes lower. This increase in investment spending can lead to further growth and development of the company.

Higher Stock Prices Can Lead to Greater Investment Spending by Firms