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What role does par value play in pricing and sale of common stock by the issuing...

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lscrivy | Student, Undergraduate | Salutatorian

Posted March 22, 2012 at 4:47 PM via web

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What role does par value play in pricing and sale of common stock by the issuing corporation?

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justaguide | College Teacher | (Level 2) Distinguished Educator

Posted March 22, 2012 at 10:06 PM (Answer #1)

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The pricing of shares when the founders decide to part with some of their shareholding in the company is not related to the par value of the shares. The par value of a share is only a minimum amount that has to be maintained as reserves by the firm. For example the par value of a share of Google is only $0.001 but the pricing of each share during the initial public offering of the company was approximately $85 and the current value of the stock is around $ 650.

When investors buy the shares of a firm their primary concern is the  earnings per share of the company and what the prospective growth in the EPS of the company is. If a company is well run and profitable or has a business model that could allow it to make large profits in the future, investors would be willing to pay a high price for the shares. The par value of the share does not have any relevance here.

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