Share

Background

In economic terms, a share represents a unit of ownership in a company or financial asset, providing certain rights and potential returns associated with the growth and profits of that entity.

Historical Context

The concept of shares dates back to the early stock companies, which began to emerge in the 16th century. These companies sought to pool resources from multiple investors to fund ventures, particularly long-distance trade, such as the famed Dutch East India Company.

Definitions and Concepts

Ordinary Shares: These shares typically carry voting rights, enabling shareholders to participate in major corporate decisions during annual general meetings. They usually receive dividends, which are part of the company’s profit distributed to shareholders.
Preference Shares: These shares provide holders priority over ordinary shareholders regarding dividend payments but typically do not grant voting rights. Dividends on preference shares are usually fixed and must be paid out before any dividends on ordinary shares.
Debentures: Essentially long-term financial instruments issued by companies as loans. They carry fixed interest payments and come with the right to take over company control if interest payments are defaulted.

Major Analytical Frameworks

Classical Economics

Classical economics doesn’t extensively differentiate between types of capital but focuses primarily on the accumulation and production aspect.

Neoclassical Economics

Marginal productivity theory influences the valuation of shares. As firms maximize profit by equating marginal product to cost, share returns unify to equate investor expectations of future profits.

Keynesian Economics

This approach underscores the roles of investor sentiment and expectations in share prices. Uncertainty and “animal spirits” significantly impact investment in shares.

Marxian Economics

Shares represent socially-owned encapsulations of surplus value. The distribution of dividends benefits capital owners, reinforcing broader capitalist systems of exploitation.

Institutional Economics

Focuses on the regulations and norms shaping shareholding. This includes legal requirements like treating shareholders equitably, the role of corporate governance, and market behaviors influenced by societal norms.

Behavioral Economics

Examines how psychological factors impact investor behavior. Psychological biases, like overconfidence or aversion to loss, significantly affect share trading, valuation, and market bubbles or crashes.

Post-Keynesian Economics

Emphasizes the influence of finance and investment on real economic conditions, shedding light on speculative bubbles and the drastic effects of changing share values.

Austrian Economics

Shares symbolize entrepreneurial risks. Unrestricted and less regulated markets allow shares to more efficiently signal company performance, urging optimal resource allocative behaviors.

Development Economics

Focuses on how shares and equity markets can serve as sources of funding for developing economies, calling for legal structures to protect investors and support accessible markets.

Monetarism

Highlights the importance of control over money supply. Share prices reflect liquidity; excessive or insufficient money supply can either inflate or deflate market valuations, respectively.

Comparative Analysis

When comparing types of shares, ordinary shares are desirable for those seeking voting privileges versus preference shares which appeal to more risk-averse investors seeking fixed returns.

Case Studies

Dot-com Bubble (1995-2000): Demonstrates how speculative investor behavior, fueled by unbound optimism, led to massively inflated share prices until a market correction caused a collapse.
Financial Crisis of 2008: Highlighted the significant intersection between complex financial instruments, debenture failures, and the broader economic impact.

Suggested Books for Further Studies

“Irrational Exuberance” by Robert J. Shiller
“Capital in the Twenty-First Century” by Thomas Piketty
“The Intelligent Investor” by Benjamin Graham

A-Share: A type of share that is geographically restricted or applies specifically to certain classes, eg., allowing Chinese citizens to trade in China mainland’ stock exchanges.
Deferred Share: Shares that don’t receive dividends until other classes, especially preference shares, have been paid.
Non-voting Share: Shares allowing owners to gain capital appreciation without participating in company decisions.
Voting Share: Shares that provide the privilege of voting on major company decisions during shareholders’ meetings.

This updated dictionary entry on “share” extensively covers various facets of the term, offering clarity and depth for educational or professional usage.