3. EFFECTS OF SHAREHOLDERS
(i) The market value of shares falls down which leads to
depreciation of shareholders investment. They have to
suffer huge losses ,if they sell their shares.
(ii) As the earning of company are reduced shareholders
cannot get fair return on investment. The dividend declared
becomes very low, irregular and uncertain
(iii) The shares of over capitalised companies are not accepted
as security and shareholders find it difficult to borrow
money against the shares. These shares are treated as
liability rather than assets .
(iv) The company management may do speculative activities
in the shares , which may affect the interests of the share
holders adversely
(v) If the capital is re-organised, the face value of shares may
be brought down which also affect the share holders
adversely.
4. EFFECTS ON SOCIETY
i) The profits on an over capitalised company show a
decreasing trend. Such a company may resort to tactics like
increasing product prices, reducing product quality etc
ii) As part of reducing the cost of production ,the company
may reduce wages and minimize labour welfare measure
which may result labour unrest and strikes
iii) Creditors of the company may not get regular payments of
interest and principal amount.
iv) The firm may not be in a position to with stand completion
and will be forced to close down the business.
v) The scarce and limited resources may be utilised
unprofitable and ineffective manner by the over capitalised
firms which otherwise could be utilised effectively by other
better performing firms.
