Why does the share price range vary from market to market?
The shares of a typical British public company are valued on the market at ... what? Around 100p? 300p? 800p? It depends on the company's performance and sector, of course, although not too many businesses see their shares changing hands at more than £8 each. But what determines this range, which is surprisingly low by most international comparisons? The equity of German companies, for example, is divided into chunkier chunks. In recent times Bayer shares have been bought and sold at about DM380, which is approximately £165, Daimler Benz at DM740, or some £320. The Dutch also like their companies in biggish pieces: Heineken shares trade at about DF280 (over £100). But neither the Germans nor Dutch can match the Swiss when it come to large mouthfuls: Nestle shares have been changing hands at SF1,230 (£660) a time. The French, by contrast, prefer much daintier morsels: Michelin shares sell at around FF220 (£28). In New York Campbell Soup's common stock trades at around the same level.
Is there any explanation for these wide variations? Are they simply a matter of custom, or do they have any more practical justification? Professor Colin Ward of Reading University points out that differing share price norms reflect the relative importance of small investors in particular markets. The UK not only has a large and highly active stock market but a considerable proportion of private shareholders. Indeed the small investor is more or less officially encouraged, and a low price per share is believed to make equities more attractive - and more available - to aunt Maud and cousin Jim.
This contrasts with practice on the Continent where stock markets are much smaller and the overwhelmingly dominant shareholders are frequently banks or other businesses. Besides, it's argued, Continental corporate investors have a long tradition of buying bonds, which are generally higher priced.
'There are no economic reasons why investors should prefer particular price levels,' says Stephan Beauchesne of the US National Association of Security Dealers. Any tendency towards a normal range Beauchesne puts down to habit. However there is also a persistent belief among stockholders that a lower price represents some kind of bargain. In this, US stockholders are little different from British ones.
Investment professionals appear indifferent to the actual price, believing that a company is worth what it's worth no matter how the equity is divided. Nevertheless those close to the market would do well to remember the consistent success of the old stockbroker whose immediate response on hearing of an investment company floating at 80p a share was 'Financial services at under a quid? I'll have some'.