Overcapitalization

Overcapitalization,

Overcapitalization Definition:

  1. More investment occurs when a company issues debt and equity in excess of the value of its assets. In this case, the market value of the transaction is less than the total investment value of the transaction. Over-capitalized companies can pay higher interest and profits than in the long run.

    • Additional investment occurs when a company owes more than the value of its assets.
    • A company with too much capital may have to pay higher interest rates and profits, which reduces its profits. It may not last long.
    • Finally, companies with more capital are at risk of going bankrupt.