Investors closely watch the daily fluctuations of stock prices in the financial market, eagerly discussing corporate profitability and future potential. However, behind these ever-changing numbers lies a seemingly insignificant yet fundamental concept rooted in corporate law and accounting systems—Par Value. Many novice investors have a limited understanding of it, often confusing it with stock price or company value, which can lead to misjudgments of a company’s financial health.
Before exploring the impact of par value on investment decisions, it’s crucial to build a solid foundation of knowledge. This foundation begins with the definition of par value itself and its key role in a company’s formation and capital structure.
Par value, also known as face value or nominal value, refers to the fixed amount recorded on the face of a stock certificate when a corporation issues shares. This amount is denominated on a “per share” basis, and its primary function is to serve as the accounting basis for a company’s share capital. It originates from the practice of listed companies dividing the shareholders’ original investment (i.e., share capital) into numerous equal shares, with the par value representing the capital amount of each share. Therefore, in accounting, a company’s total share capital is calculated by multiplying the “par value per share” by the “total number of issued shares.” The formula is:
Share Capital = Par Value per Share × Number of Issued Shares
This is not just an accounting record; it also represents the capital initially invested by shareholders that cannot be arbitrarily withdrawn, thus serving as a minimum guarantee for the company’s creditors and a standard for measuring its creditworthiness. According to corporate law, when a corporation is established, it must specify in its articles of incorporation whether it will adopt “par value stock” with a fixed face value per share or “no-par value stock” without a face value. It is worth noting that regardless of whether a stock has a par value, it represents the shareholder’s investment proportion in the company’s total capital, and shareholders of both types enjoy equal rights.
To understand the nature of par value, one must first distinguish it from two other frequently confused price concepts—the stock issue price and the stock market price. Par value and issue price are entirely different concepts. Par value is merely an accounting “unit of measure,” whereas the issue price is the actual price per share at which the company sells stock to investors during an Initial Public Offering (IPO) or a seasoned equity offering. The issue price is typically determined by market demand and the company’s value and can be significantly higher than the par value.
Once a stock enters the secondary market, its price is no longer influenced by its par value or issue price. At this point, the stock’s trading price is determined entirely by market supply and demand, investor expectations of the company’s future profitability, and the overall economic environment. This is what we commonly refer to as the “stock market price” or “stock price.” It’s important to note the significant conceptual gap between these three values. Par value is merely a historical accounting concept; its numerical value has no direct correlation with the company’s actual operations or profitability. Therefore, one should never judge a stock’s true value based on its par value alone. If an investor mistakenly views par value as a “minimum guarantee” or “value anchor” for a stock, they will fall into a major misconception when assessing the company’s value. This also explains why, in modern markets, a simple nominal value is far less important than a company’s substantive fundamentals.
Although par value no longer represents the true value of a stock in modern markets, this does not mean it is useless. On the contrary, it plays an indispensable behind-the-scenes role in a company’s capital structure, fundraising strategy, and financial statement presentation.
When a company issues new shares at a price higher than the par value, the portion of the issue price that exceeds the par value is called “share premium.” According to accounting standards, this premium is not recorded in the share capital but is listed separately as an item under Capital Surplus. This accounting treatment may seem complex, but it is the accounting foundation that reflects the relationship between the actual amount contributed by shareholders and the company’s legal capital.
Let’s illustrate with a simple seasoned equity offering example: A company initially has a share capital of $20 million, with 2 million shares issued at a par value of $10 per share. If the company performs well and its stock price reaches $100, it decides to issue 500,000 new shares at $100 each to raise funds. In the accounting records, the share capital only increases from $20 million to $25 million (i.e., 2.5 million shares × $10 par value). Of the $50 million raised, $45 million is not recorded as share capital. This $45 million is recorded in the Capital Surplus account, which is also part of shareholders’ equity. This accounting method not only ensures the stability of the share capital but also clearly indicates the actual funds invested by shareholders.
It is worth noting that the use of capital surplus is legally restricted. For example, it can be used to offset company losses or, under certain conditions, to issue stock dividends. However, different sources of capital surplus may be treated differently under tax law. This shows that the influence of par value as an accounting basis extends far beyond simple numerical calculations, affecting a company’s financial operations and legal compliance. In many countries, companies often set a very low “symbolic par value” or “penny par value.” The motivation behind this is to credit the vast majority of funds from a capital increase to capital surplus, thereby increasing financial flexibility and avoiding accounting problems that could arise from issuing shares at a discount.
The setting of stock par value varies across different countries and regions, leading to different systems and strategies. In Taiwan, since 1979, for ease of administration and settlement, the regulatory authorities stipulated that the par value of all stocks should be uniformly NT$10. This became the most familiar par value for many Taiwanese investors. However, since 2014, the government has introduced a “flexible par value” system, allowing companies to set their par value at NT$1, NT$0.25, or even lower, according to their needs.
Stocks that adopt a flexible par value are often marked with a “*” after their name. The most direct impact of this system is an increase in the number of issued shares, which in turn stimulates trading volume. Take Chang Wah Technology (6548), the first company in Taiwan to change its stock par value, as an example. After reducing its par value from NT$10 to NT$1, its stock price dropped from NT$300 to NT$30, but its average daily trading volume surged by 20 times. This effect is analogous to a stock split in the US market. Although in theory, a stock price adjustment due to a change in par value does not alter the company’s total market capitalization, the actual market reaction can create a “liquidity premium.” This is because lowering the par value makes the stock price appear more “affordable,” attracting more small-scale investors. This new trading volume can ultimately push the stock price up, leading to an increase in market capitalization. This reveals an important insight: in financial markets, a simple accounting adjustment can influence investor psychology and market liquidity, ultimately changing a company’s market valuation. It also proves that the “presentation” of numbers is sometimes as important as their “substance.”
In markets like the United States, No-Par Value Stock is quite common and predates Taiwan’s flexible par value system. These stocks do not have a monetary amount printed on the certificate. Their advantage lies in the flexibility of the issue price, which is not bound by the restriction of “not being issued below par value.” It also makes it easier for companies to conduct stock splits to increase market liquidity. This allows companies to determine the issue price more flexibly, lowering the fundraising barrier for startups and facilitating the attraction of new capital. From this perspective, whether it’s Taiwan’s flexible par value or the no-par value stocks in Europe and America, the underlying logic is to transform par value from a rigid “value anchor” into a dynamic “capital management tool” to better respond to market changes and corporate development needs.
While stock par value is important for a company’s operations and financial presentation, it is more crucial for investors to learn not to be misled by its appearance. Next, we will delve into how par value affects the investment metrics we most commonly follow and provide the correct analytical perspective.
One of the most watched metrics by investors is Earnings Per Share (EPS), which is calculated as a company’s net profit divided by the number of issued shares. When a company lowers its par value while keeping the total share capital constant, the number of issued shares increases. This will cause the reported EPS figure to appear “diluted.” For example, if a company has a net profit of $1 billion and lowers its par value from $10 to $1, the number of issued shares will increase from 100 million to 1 billion. Consequently, the EPS will change from $10 to $1. Although the EPS figure drops significantly, the company’s total profit remains unchanged; it is purely a numerical illusion.
Recommended Reading:What is the P/E Ratio? A Comprehensive Guide to Understanding Stock Valuation
Similarly, dividend distributions can also be affected by changes in par value. Although the total distributable dividend amount remains the same, the dividend per share will decrease as the number of shares increases. Therefore, simply comparing the “per-share data” of companies with different par values is dangerous and misleading. The correct approach is to focus on the company’s overall profitability, total revenue, and total market capitalization. The existence of par value objectively reinforces the concept of “per-share data,” but when par value becomes flexible, these per-share metrics (like EPS, stock price, and book value per share) are no longer directly comparable. This is an important lesson for investors: it is crucial to shift one’s thinking from a micro “per-share” concept to a macro “overall” perspective. The latter are the core indicators that truly reflect a company’s value and represent a necessary step in evolving from a novice to a mature investor.
To more clearly distinguish between these key concepts, we can conduct an in-depth comparison of par value, book value, and market value. These three represent assessments of a company’s value from different perspectives.
The difference between book value and market value is at the core of “value investing.” Value investors compare these two to find potentially undervalued stocks (often with a price-to-book ratio of less than 1). However, this method is not applicable to all industries; for example, the value of tech companies often comes from intangible assets like technology and patents, which are not reflected on the balance sheet. Par value, on the other hand, has no direct relationship with either of these and is merely an accounting tool.
The following table provides a brief summary and comparison of these three values:
| Value Type | Definition and Meaning | Determining Factors | What It Reflects |
| Par Value | The nominal amount stated on a stock certificate; an accounting unit for calculating share capital. | Set at the company’s incorporation or changed by a board resolution. | A historical accounting concept, unrelated to the company’s actual value. |
| Book Value | Total shareholders’ equity divided by the number of outstanding shares, i.e., Book Value Per Share (BVPS). | The company’s historical assets and liabilities. | Reflects the company’s “liquidation value”; a conservative estimate. |
| Market Value | The actual trading price of the stock in the market. | Market supply and demand, company profitability, future outlook. | Reflects the market consensus and expectations for the company’s future value. |
Having navigated through the fog surrounding stock par value, we can now clearly see the role this simple accounting concept plays in the modern financial world. As a historical accounting unit, the core function of par value in today’s market has shifted from a “value guarantee” to a “tool for capital structure.” It is neither a reflection of a stock’s value nor a direct indicator of a company’s true profitability, and it should not be the sole or primary basis for investment decisions.
For savvy investors, the key to success lies in looking beyond these nominal figures and returning to a deep analysis of a company’s fundamentals. This includes analyzing the company’s total market capitalization and total profit, rather than being misled by individual per-share metrics. It also involves a thorough understanding of the company’s business model, competitive advantages, and industry outlook—these are the core engines that drive stock prices. In an age of information overload, access to accurate and real-time data is crucial. Platforms like Cashback Island not only offer competitive trading rebates but also provide professional calculation tools and real-time updated news and information to help investors analyze financial data more effectively and make truly value-based investment decisions. After all, the journey of investing is not a numbers game, but a test of knowledge, patience, and foresight.
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Stock par value is a nominal accounting figure used primarily to calculate a company’s share capital. It does not represent the company’s actual value and is unrelated to its profitability. In contrast, the stock market price is the actual trading price determined by market supply and demand, investor expectations, and the company’s fundamentals. In short, par value is a historical accounting concept, while market price is a dynamic indicator reflecting the company’s future value.
Since Taiwan introduced the flexible par value system in 2014, more and more companies have adopted it, mainly to increase stock liquidity and lower fundraising barriers. By reducing the par value, the stock price appears more “affordable,” which can attract more retail investors and boost trading volume. Additionally, adopting low-par or no-par value stocks gives startups greater pricing flexibility when raising capital, as they are not bound by the restriction of “issuing shares at a price no lower than par value.”
No, it does not affect the company’s actual profitability. The dilution of EPS is merely a “numerical illusion” on paper. When a company lowers its par value, its total share capital remains constant, but the number of issued shares increases. Since EPS is calculated by dividing “net profit” by the “number of issued shares,” an increase in the number of shares will naturally make the EPS figure smaller, but the company’s total profit remains unchanged. Therefore, when investing, one should focus on the company’s total market capitalization, total profit, and other overall metrics, rather than on individual per-share figures.
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