Hi everybody,
my question is WHY we use the fair market value for small stock dividend and not the par value?? and vice versa!!
thanks in advance
As the small stock dividend slightly, or even do not, affect the market price of shares,
the "best" benefit that the shareholder obtain is that the extra shares can be sold at the
current market price, which in turn is the value of the stock dividend (i.e. the opportunity cost approach)
Unlike the large stock dividend, they would affect the market price significantly.
The market price of the share will drop dramatically if the large stock dividend is declared,
just like the stock-split.
Since the extra shares (obtained by the shareholders) cannot be sold at the
current market price, so the value of the stock dividend is stated at the par value