Difference between Market value and par value

Difference between Market value and par value

1. Determination

Par value is determined by the management at the time of issuance after considering the relevant guideline and prevailing laws issued by the regulator. Market value is determined by market and depends on number of factors.

2. Issue Price

Share is issue at par value and market value has no role at the time of issue.

3. Trade

Share are traded in the stock exchange at market price and issue price has no role in the trading of stock exchange

4. Dividend Declaration

Dividend is based on the par value. Market value has no relevance in dividend declaration. For example company announces a 10% dividend having par value 100 and market value 1200 of its share. it means that company is going to pay a dividend for $ 10 per share i.e. 10% of 100

5. Dividend effect

Declaration of dividend has no effect on the par value. Market price tends to rise or decline at dividend declaration. if dividend declared is more than market expectation the share price will rise in the market otherwise it will decline.

6. Premium and discount

Share may be issued at a price above the par value or below par value know as premium or discount. The share cannot be traded at discounted market price of premium market price.