Abstract: No-Par Stock, the Value of Intangibles, and the Legitimacy of American Equity Markets, 1891-1927

Daniel Holt

Abstract

Between 1891 and 1912, leading corporate lawyers in New York state lobbied for a law permitting corporations to issue shares of common stock without a nominal or par value. The campaign for no-par stock was in part a response to the public outcry over "watered stock" at the start of the twentieth century. Economists and corporate lawyers argued that there was no such thing as "watered stock" and that the notion of par value itself was misleading investors. Removal of par value from stock certificates, corporate lawyers maintained, would sever the connection in the public mind between a corporation's book value, based on its tangible property, and the market value of its shares, based on the earning power of that property. After New York adopted the first no-par stock law in 1912, other states followed until by 1927 thirty-eight states permitted no-par stock. I argue that the movement for no-par stock represents an important development in the public conception of corporate stock and helped set the conditions for the 1920s boom in securities speculation. Relying on legal and economic treatises, court cases, government hearings, newspapers, and the records of the New York State Bar Association (NYSBA), I trace the evolving legal doctrines concerning par value and the campaign to achieve the first no-par stock law in New York. The drive to create a category of stock without par value was part of a larger effort by corporate interests to enshrine the stock market as the legitimate arbiter of corporate value.