Essay - Main Considerations to Influence a Firm's Capital Structure Practical Factors...


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Main Considerations to Influence a Firm's Capital Structure

Practical factors influencing capital structure of a company

This report will present insights about the financial issues a corporate must take into consideration when thinking ***** developing its operations or about consolidating its position on the market. The capital structure is a sensible issue th*****t will be tackled alongside practical considerations. In the end, the auth***** will highlight his conclusions on the topic.

*****troduction

Besides its savings and investments, a particular ***** must rely on foreign resources ***** financing in order to develop ***** activities or consolidate ***** c*****porate ***** on the market. Among ***** long term f*****ancing means one could mention common ***** preferential s*****cks, reinvested profit and long term liabilities. ***** capital structure is different from the financial structure of a corporation, which additionally includes other sources of *****, accounts payables and other types of liabilities - wages to employees, unpaid dividends to shareholders. The capital structure of a company ***** to be selected according to many criteria, which will further on ***** in this paper. Funds, which are the engine behind the performance ***** a company ***** the market, must be raised by all means ***** methods - ***** the credi*****rs, suppliers, banks, population, financial institutions. In the next paragraphs, we shall discuss the factors that affect the corporate decision in respect to its capital structure, offering empirical examples that best present the situation.

***** affecting ***** capital structure

In the ideal economic world, the value of a company is independent ***** its capital structure. Or, in o*****r words, the f*****ancing ***** of a company are not considered when estimating the real ***** value, the market position of that *****. But in ***** reality, different ***** affect the corporate *****, as ***** will see in the ***** paragraphs.

*****) Capital structure and time are strongly correlated terms, with the historic elements affect*****g ***** ***** capital ***** of the ***** to a great extent. For example, firms from the past may have been more pr***** to finance their long term activities and plans than companies do it nowadays. Let us make a comparison between companies *****day and the behavior ***** companies back in the '80s. The financial statements indicate that, in ***** *****, companies decided to accept an extra financial leverage, reaching an important amount ***** the ********** assets, in order to consolidate the ***** control. (Harris and Raviv -1991, page 334). ***** situation is today somehow different because commercial entities prefer to balance ***** assets with ***** *****. The *****iation policy is well used also in the ***** market - managers engage in different financial projects in order to dim*****ish ***** risk - for ***** issue shares, bonds ***** other securities, take loans and cred***** and ask for refundable funds (subsidies, structural funds). ***** business risk notion is highly related ***** ***** leverage and capital structure - as a company with a high financial burden could be put in the position of default and eventually bankruptcy.

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