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 that will be tackled alongside practical considerations. In the end, the author ***** highlight his conclusions on the topic.


Besides its savings and investments, a particular company must rely on foreign resources ***** financing in order to develop ***** activities or consolidate the corporate position on ***** market. Among the long term financing means one could mention common ***** preferential stocks, reinvested profit and ***** term liabilities. The capital ***** is different from the ***** structure of a corporation, which additionally includes other sources ***** *****, accounts payables and other types of liabilities - wages to employees, unpaid divid*****s to shareholders. The capital structure of a ***** 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 comp*****ny ***** 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 ***** that affect the corporate decision in respect to its ***** structure, offering empirical examples that best present the situation.

Fac*****rs affecting the capital structure

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

1) Capital structure and time are strongly correlated terms, with the historic elements affecting the ***** capital structure of the ***** to a gre*****t extent. For example, firms from the p*****t 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 of companies back in ***** '80s. The financial statements indicate *****, in the past, companies decided to acce***** an extra financial leverage, reaching an important amount from the *****tal assets, in order to consolidate the corporate control. (Harris and Raviv -1991, page 334). ***** situation is ***** somehow ***** because commercial entities prefer to balance the assets with their *****. The differentiation policy is well used also ***** the ***** market - managers engage in different f*****ancial projects in order to dim*****ish ***** risk - for example ***** shares, bonds ***** other securities, take loans and credits and ask for refundable funds (subsidies, structural funds). The business risk notion is highly related ***** financial leverage and capital 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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