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Finance Dictionary and Glossary of Investment Terms
Capital rationing
Definition 1.
Placing limits on the amount of new investmentundertaken by a firm, either by using a higher cost of capital, or by setting a maximum on the entire capital budget or parts of it.
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Definition 2.
Limiting a company's new investments, either by setting a cap on parts of the capital budget or by using a higher cost of capital when weighing the merits of potential investments. This might happen when a company has not enjoyed good returns from investments in the recent past. Capital rationing also could take place if a company has excess production capacity on hand.
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