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 ?
The fact is that these companies have not only over-grown in terms of capacity but have overcapitalized such that their earnings are not large enough to yield a fair return on the amount of capital employed.
The insurance market remains overcapitalized as a result of a relatively light catastrophe season, and rates have fallen to the point where most accounts are unprofitable if moved for lower prices.
The bank said that it would redistribute capital to shareholders if deemed overcapitalized in the future, and also added that it is planning to start paying dividends as soon as possible.
Improperly designed and sized subsidies have propped up bloated and overcapitalized fisheries that have systematically removed too many fish from the seas.
Abstract--The spiny lobster (Panulirus argus) fishery in Florida was operationally inefficient and overcapitalized throughout the 1980s.
The Bill adds into law a new definition--"overcapitalized captive insurance company"--and for those captives that fit the new definition, traditional income taxation rules will apply.
Krebs describes how an "overcapitalized" fishery may have once supported a larger fleet--500 boats, for example--when "fishing was good." But once fish stocks are over-harvested and the need for a quota becomes apparent, the fishery may be able to support only 300 boats.
These concerns were even more critical in light of the conflicting demands of a large and highly overcapitalized national fleet.
Many industry observers, both inside and outside academia, believe that the electric utility industry in the United States is overcapitalized. Our theoretical model presented in the next section focuses on overcapitalization, and so we discuss overcapitalization in general to better lay the foundation for our theoretical model.
Likewise, many of their banks are overcapitalized with nowhere to go: after the Asian crisis and the Japanese asset bubble of the 1990's, companies have become conservative borrowers, while banks' opportunities to expand within the region remain limited by restrictions on foreign ownership of local banks.
Most banks in Eastern Europe were overcapitalized with cost-income ratios of at least 90 percent.
LIFE INSURANCE INDUSTRY is overcapitalized, and that level of overcapitalization increased in 2006.