I know this question is really basic, but I dont get it. Why would an investor pay above par value unless they’re getting above par returns? I think its the same as a share premium account? its the capital that a company raises upon issuing shares that is in excess of the nominal value of the shares. ------------------------------------------------ Investopedia says: What does Additional Paid In Capital Mean? A value that is often included in the contributed surplus account in the shareholders’ equity section of a company’s balance sheet. The account represent the excess paid by an investor over the par-value price of a stock issue. Additional paid-in-capital can arise from issuing either preferred or common stock. Investopedia explains Additional Paid In Capital For example, assume that a company issues 1 million shares with a par value of $50 per share. When the shares are purchased by investors, however, they pay $70 per share - a premium of $20 over par value. When the capital received from this issue is recorded, $50 million ($50*1 million) will be allocated to a share capital or paid-in-capital account. The excess $20 million ($20*1 million) will be allocated to the contributed surplus account as additional paid-in-capital. ------------------------------------------------
Its typically called a Hot Issue. When Apple released their IPO many people wanted the stock and it was say priced at $50, but the IPO came in at $100 b/c of strong demand for the issuance. (Prices are hypothetical).
happened with Visa IPO too
Lots of stocks have no par value, so everything is additional paid in capital
Par value for common stocks is largely meaningless, and many stocks have par values of $.01, or some similar negligible amount. It has nothing to do with IPOs.
From Wikipedia: Par value is a nominal value which (a stock) is a somewhat archaic concept. The par value of a stock was the share price upon initial offering; the issuing company promised not to issue further shares below par value, so investors could be confident that no one else was receiving a more favorable issue price. Thus, Par Value is a nominal value of a security which is determined by an issuing company as a minimum price. This was far more important in unregulated equity markets than in the regulated markets that exist today. Most common stocks issued today do not have par values; those that do (usually only in jurisdictions where par values are required by law) have extremely low par values (often the smallest unit of currency commonly used), for example a penny par value on a stock issued at USD$25/share. Most states do not allow a company to issue stock below par value. No-par stocks have no par value printed on its certificates. Instead of par value, some U.S. states allow no-par stocks to have a stated value, set by the board of directors of the corporation, which serves the same purpose as par value in setting the minimum legal capital that the corporation must have after paying any dividends or buying back its stock. Preferred stock par value remains relevant, and tends to reflect issue price. Dividends on preferred stocks are calculated as a percentage of par value. Also, par value still matters for a callable common stock: the call price is usually either par value or a small fixed percentage over par value.