Eventually, the resourcesituation became so severe that the government was compelled, in 1992, toimplement an outright harvest moratorium (Gordon and Munro, ibid.). Themoratorium remains in place, and the adjustment problem is still very much withthe Canadian government at the time of writing. Under incentive-adjusting schemes, distribution aspects havebeen discussed more systematically. The fear of big business has been quiteoften referred to in connection with the likely outcome of market mechanisms(transferable licences, ITQs). Indeed, property rights have the potential toradically alter the nature of participation in fisheries, raising fear that bigbusiness will take over fisheries – even in the USA (Greer, 1995).

Under-estimation of Capitalisation Rate

It should be noted in passing, that the DWFNs would have noincentive to conserve the high seas resources they were now seeking to exploit.These fisheries were, after all, virtually text book examples of pure openaccess fisheries. Hence, the build up of capital in these fisheries was, fromthe point of view of the DWFNs, entirely rational. Furthermore, to theextent that they did gain access to new EEZs, and to the extent that theseaccess arrangements were short-term and uncertain, they would, as well, have noincentive to work towards the conservation of the intra-EEZ resources.

1. Therefore, we can say that the test of over—capitalisation is the lower rate of return on capital over a long-term.
2. Simply stated, over-capitalisation means more capital than actually required, and therefore, in a over capitalised concern, the invested funds are not properly used.
3. This may adversely affect its earning capacity and lead to over-capitalisation.
4. (iv) Loss on speculation, the prices of the shares of an over-capitalised company remain unstable because of speculative dealings in such shares.
5. Higher taxation rates may consume a large portion of earnings and, in this way, deprive shareholders of a dividend at a fair rate.

Over-Capitalization: Concept, Causes and Remedies Financial Management

A CMU approach is quite commonly used, at least implicitly, inmanaging tropical fisheries. This stems from the prevalence of multispecificfisheries; but also from the duality of fleets (artisanal/small-scale andindustrial); their relatively high mobility in space and across fisheries, and arelative lack of means to enforce a specific capacity allocationpattern. DWFNs are not the only fishing nations to make extensive useof subsidies in their fisheries.

All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. For information pertaining to the registration status of 11 Financial, please contact the state securities regulators for those states in which 11 Financial maintains a registration filing. A copy of 11 Financial’s current written disclosure statement discussing 11 Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – or from 11 Financial upon written request. Finance Strategists has an advertising relationship with some of the companies included on this website. We may earn a commission when you click on a link or make a purchase through the links on our site. All of our content is based on objective analysis, and the opinions are our own.

1. “Whenever the aggregate of the par value of stock and bonds outstanding exceeds the true value of fixed assets, the corporation is said be over-capitalised.”
2. Thus, whencombined with a policy of implementing TACs, the license limitation scheme willserve, it is hoped, to curb the build up of excess capital that is theinevitable result of a TACs-only policy.
3. The measure, however, is directed towards the rebuildingof the resource only.
4. Hence, it is very difficult for the shareholders to borrow money against the security of their shares.
5. All of our content is based on objective analysis, and the opinions are our own.

Sometimes, the rate of interest on loans received may exceed the rate of earnings on the investment. The reduction in the real value of assets will lead to low earnings and overcapitalization. “A certain degree of over­capitalisation ,”says Beacham, “may be caused by heavy issue expenses”. If expenses incurred for promotion, issue and underwriting of shares, promoters’ remuneration etc., prove to be higher compared to the benefits they provide, the enterprise will find itself over-capitalised. Just how well, was shown in 1991 when the government allowed the monopsonypower of the SMCP to be undermined. In 1993, themonopsony power of the SMCP was restored, although there are now moves towardsprivatising the company at the insistence of the World Bank.

EXCESS CAPACITY IN WORLD FISHERIES: UNDERLYING ECONOMICS AND METHODS OF CONTROL

Debentures, public deposits and loans taken at higher rates of interest should be prepaid out of accumulated profits or out of fresh borrowings at lower rates of interest, if there are no accumulated profits. Management should try to become more efficient and try to curb excess expenditure. Earning capacity should be improved and care must be taken to spend every single rupee in the most profitable and economic manner.

The second example relates to an actual fisheries managementexperience, and emphasizes the significance of perspective when discussing“conventional” capital and its malleability, or lack thereof. Theexample focuses upon the famous Northern Cod resource off AtlanticCanada. Economic waste, from society’s point of view, can beexpected to emerge as a consequence of two factors. First, there may be“crowding” resulting in destruction of gear as fishermen impede oneanother’s operations. Secondly, there will be wasted fixed costs as areflection of the redundant vessel capital in the fishery.

The generally perceived problem with limited entry plus buyback schemes, when combined with TACs, however, causes of over capitalisation is that the perverse incentives,which led to “capital stuffing” and the “race for the fish”in the first place, remain unchanged. Therefore, the fishermen have a powerfulincentive to circumvent the regulations. Al. (1997) warn that a buyback scheme introduced when the perverse incentives remain unaltered can easilyresult in a short-term reduction in capacity being quickly reversed. This substitution of human capital will have consequences that areobvious. In addition, active vessel owners, who do not sell out, may beencouraged to engage in “capital stuffing”.

Unless countermeasures are adopted to combat obesity, the situation is dire for such an individual. Depreciation may be charged at a lower rate when compared to actual depreciation. The result will be a reduction in the real value as compared to the book value.

It is expected that such measures willmitigate the tendency towards overcapitalization. Vessel catch limits restrict the amount that a vessel canland, either on a per-trip basis, or on a per period of time basis, e.g. perday, week, or month. The former do not restrict the number of trips that avessel can take; the latter do not restrict the number of days, weeks, monthsthat a vessels can operate. There may, or may not, be a significant exodus of vesselsfrom the fishery at the beginning of the programme.