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 its position on the market. The ***** structure is a sensible issue that will be tackled alongside practical considerations. In ***** end, the auth***** ***** highlight his conclusions on the topic.


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

***** affecting the capital structure

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

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