Overcapitalization

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Overcapitalization

Said to occur when a firm cannot service its debt even though its debt/equity ratio is not excessive.

Overcapitalization

A situation in which a company has too much capital. An overcapitalized company has an excessive amount of cash or liquid assets; it may find itself in a position, for example, of paying high dividends that it would have difficulty reducing in the future. Its earnings may or may not adequately reflect the capital invested in the company. An overcapitalized company may repay its debt or make a tender offer for shares in order to reduce its capital.
References in periodicals archive ?
One purpose of the regulatory disallowances was to make utility management accountable for cost overruns and thereby reduce their incentive to overcapitalize.
We find theoretical support for the proposition that regulatory cost disallowances increase utilities' incentives to overcapitalize.
If so, the model presented in this paper identifies a countervailing incentive--a tendency to overcapitalize even further because of the disallowance effect on a utility's de facto allowed rate of return.