Capital Stock – Definition

Cite this article as:"Capital Stock – Definition," in The Business Professor, updated March 8, 2019, last accessed October 25, 2020, https://thebusinessprofessor.com/lesson/capital-stock-definition/.

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Capital Stock Definition

Capital stock refers to the total preferred and common shares issued to shareholders by a corporate entity. These shares form a percentage of the total number of shares authorized for the entity. Shareholders refer to capital stock as the amount of shares in a stock in a corporation that they own while accounts consider capital stock as the percentage of all capital shareholders pay.

A Little More on What is Capital Stock

For accountants, capital stock consists of nominal value, which is the par value allocated to the stock during authorization. Shares can be issued below or above their par value.

References for Capital Stock

Academic Research on Capital Stock

  • Capital theory and investment behavior, Jorgenson, D. W. (1963). The American Economic Review, 53(2), 247-259. This paper analyzes the economic theory and the econometric practice and the gap that exists in the literature on business investments. It delves deeper into the contents of econometric literature. The study finds out that reconciling the march of econometric literature and the steady advance in the acceptance of neoclassical theory is a challenge.
  • Empirical investment equations: An integrative framework, Abel, A. B. (1980, January). In Carnegie-Rochester conference series on public policy (Vol. 12, pp. 39-91). North-Holland. This paper examines the factors that advice investments in developing countries since the debt crisis. It notes that there exists scattered and few literatures on investments in developing countries. The paper seeks to find out whether the variables that determine investments in developing countries are the same with those that determine investments in industrial countries. The paper concludes that, investment decisions in developing countries are not determined by the same variables as in industrial countries. Factors such as financial regression, lack of infrastructure, shortage of foreign exchange and economic instability play a role in investment decisions.
  • Foreign direct investment and the domestic capital stock, Desai, M. A., Foley, C. F., & Hines Jr, J. R. (2005). American Economic Review, 95(2), 33-38.  This paper looks at the effects of foreign direct investment in the US. It seeks to shed light on the concerns that foreign activities of American corporations reduce employment and can even affect the economy of the country. However, the study finds out that there is no evidence that involvement in foreign activities by corporations affect domestic resources but there are questions that need to be answered.
  • The effects of outbound foreign direct investment on the domestic capital stock, Feldstein, M. S. (1995). In The effects of taxation on multinational corporations (pp. 43-66). University of Chicago Press. This paper examines the effects that outbound foreign direct investment has on capital stock. The paper looks at the value of assets owned by corporations in the US, those owned by affiliates outside the US and also foreign debt and equity.
  • Optimal investment under uncertainty, Abel, A. B. (1983). The American Economic Review, 73(1), 228-233. This paper analyzes the effects of output price uncertainty on investment decisions in a risk neutral firm.
  • Capital-market imperfections and investment, Hubbard, R. G. (1997). (No. w5996). National Bureau of economic research. This paper looks at how financial constraints influence investment decisions. It looks and the developments and challenges in the financial sector. It uses different models to analyze the effects of these constraints and how research can help alleviate poor financial investment decisions.
  • The stock market’s valuation of R&D investment during the 1980’s, Hall, B. H. (1993). The American Economic Review, 83(2), 259-264. This paper reports that during the 1980s, the stock market valuation on R&D investments in the manufacturing sector fell precipitously.
  • Adjustment Costs in the Theory of Investment of the Firm, Gould, J. P. (1968). The Review of Economic Studies, 35(1), 47-55. This paper seeks to address the problems associated with the theory of investment behavior. It concludes that the way to deal with the loopholes in the theory is to hypothesize that the average economic price of capital goods goes up as investment levels increase.
  • Trading is hazardous to your wealth: The common stock investment performance of individual investors, Barber, B. M., & Odean, T. (2000). The journal of Finance, 55(2), 773-806. This paper looks at the effects of trading to the investors. It shows that investors will have to pay a performance penalty when they trade actively. It samples traders between 1991 and 1996 and finds that they earned 11.4 percent when the market made 17.9 percent returns. It explains that overconfidence leads to the high levels of investment and concludes that trading does little to help create wealth
  • The effects of uncertainty on investment and the expected long-run capital stock, Abel, A. B. (1984). Journal of Economic Dynamics and Control, 7(1), 39-53. This study examines how optimal investment behavior is affected by output price uncertainty. It finds that increases uncertainty increases the rates of investment and expected long run capital stock.

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