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

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

Fac*****rs *****ing ***** ***** structure

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

*****) Capital structure and time are strongly correlated terms, with the historic elements **********g the ***** capital ***** of ***** ***** to a gre*****t extent. For example, firms ***** the past may have been more pr***** to finance their long term activities and plans than companies do it nowadays. Let us make a comp*****rison between companies ********** 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 from the *****tal assets, in order to consolidate the ***** control. (Harris and Raviv -1991, page 334). The situation is ********** somehow different beca*****e commercial entities prefer to balance the assets with their liabilities. The *****iation policy is well used also ***** the financial market - managers engage in different f*****ancial projects in order to diminish the risk - for ***** issue shares, bonds ***** other securities, take loans and cred***** and ask for refundable funds (subsidies, structural funds). ***** business risk ********** is highly related ***** financial leverage and ***** structure ***** as a comp*****ny with a high financial burden could be put in the position of default and eventually bankruptcy.

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