Overcapitalisation

Overcapitalisation or Overcapitalization, refers to an economic phenomenon whereby the valuation/ price of an asset is superior to its ‘real’ value – however difficult to define - therefore putting a strain on attempts to obtain a reasonable return on investment. This is especially the case when capital goods are at stake which are necessary to engage in the production of goods or delivery of services (e.g. agricultural holdings, industrial plants, etc.). It is less the case with those contemporary financial instruments that are valued not for their returns, but for their potential earnings upon resale.