What are the effects of under capitalization?

1-On Shareholders

A-Company’s profitability increases. As a result, rate of earnings go up.

B-Market value of share rises.

C-Financial reputation also increases.

D-Shareholders can expect a high dividend.

2-On company

A-With greater earnings, reputation becomes strong.

B-Higher rate of earnings attract competition in market.

C-Demand of workers may rise because of high profits.

D-The high profitability situation affects consumer interest as they think that the company is overcharging on products.

3-On Society

A-With high earnings, high profitability, high market price of shares, there can be unhealthy speculation in stock market.

B-‘Restlessness in general public is developed as they link high profits with high prices of product.

C-Secret reserves are maintained by the company which can result in paying lower taxes to government.

D-The general public inculcates high expectations of these companies as these companies can import innovations, high technology and thereby best quality of product.