Can the Par Value of Shares Be a Usefulness Financing Tool?

Abstract

This paper shows that although par value (also known as nominal value or face value) was created to secure the liabilities of creditors, it can be a useful tool for financing a company. The study is based on a sample of initial public offering firms which went public on the Warsaw Stock Exchange from 1998 to 2013. The study finds that an excess supply of shares has a negative impact on their valuation. In contrast, decreasing the par value prompts perceptual biases among investors beneficial to the success of the issuance. Thus, initial public offering companies strive to issue the number of shares within the expected range. Also, share capital is found to be a useful signalling tool to improve the company's position on the financial market.