Question

In my textbook, it says in the primary market transaction, the company is the seller. The second market transaction is about one owner selling to another. So, in the secondary market, can't a company be a single owner? The seller mentioned in the primary market is the company, but why the company can not be the seller in the secondary market? Can anyone please explain the significant differences?

Answer 1

Company normally will not sell in the secondary market because usually company sells shares to raise capital for which it needs to sell large number of shares. Selling in the primary market usually involves underwriters who guarantee a particular price. If company sells large number of shares in the secondary market there will be a huge supply in the market, and if there are not enough buyers, price could drop drastically which will lead to the company not raising the required capital.