The Managing Director of the Capital Market Opportunity Center (CMOC), Ms. Sopawadee Lertmanaschai, announced that a reduction in par value has obviously helped increase trading activities on the bourse as well as the liquidity of stocks. It is also a supporting factor to increase shareholder's wealth. This is because the par value reduction increases the number of shares floated while, through the market, share prices were able to adjust to appropriate levels. This has the effect of attracting retail investors into the market and helped increase trading liquidity plus a more dispersed distribution of shares. As a result, the share prices rose. Reduction of par value is already popular in overseas market as a way to enhance the attractiveness of the stocks.
"In overseas markets, companies having their par value reduced are those in which their executives have confidence in growth. Par reduction is adopted so as to prevent shares becoming over-priced and may be viewed as a signal of positive business trends for a company. Moreover, par reduction also helps adjust share prices to more appropriate levels, which helps make them look attractive to investors. It increases the number of shareholders as well as the range of the share distribution. Liquidity and the demand of the stocks will also be enhanced.
"In regard to companies listed on the SET, we found that the share prices on the announcement date were 5% up in average from the previous day's closing prices. An average price after the par reduction announcement also rose. Ten-day, 20-day, and 30-day average prices were 8%, 10%, and 12% up respectively. Trading volume and value, daily transactions and number of shareholders all rose compared to pre-announcement levels," Ms. Sopawadee said.
From 30-day, 60-day, and 90-day statistics comparing pre- and post-par reduction, it was found that for securities that had their par value reduced, their daily trading turnover rose by as high as 5-9 times. Daily average trading turnover and daily transactions also double increased. The number of shareholders increased by 40% and the average closing prices were up 1-8%.
"The par value reduction is an approach listed companies can consider to increase the liquidity as well as the value of their stocks. The SET has sent the results of our study to listed companies so that they may consider its implications. Our Issuer Marketing Dept. is also pleased to offer advisory services regarding this issue. It is expected that more listed companies will use par reduction as a tool to increase the attractiveness of their companies' shares and, as a result, the overall market as well," the managing director of the CMOC said.
From early 2000 to the present, twenty-eight companies announced a reduction of par value a total of 31 times. Among these, three companies have reduced their par value twice in two years. They are: Asian Seafoods Coldstorage Public Co., Ltd. (ASIAN), Thai Union Frozen Products Public Co., Ltd. (TUF), and Seafresh Industry Public Co., Ltd. (CFRESH).
