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 about 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 the end, the author will highlight his conclusions on the topic.

*****troduction

Besides its savings and investments, a particular company must rely on foreign resources of financing in order to develop its activities or consolidate the c*****porate ***** on ***** market. Among the long term financing means one could mention common ***** preferential s*****cks, reinvested profit and long term liabilities. ***** capital structure is different from the ***** structure of a corporation, which additionally includes other sources of *****, accounts payables and other types ***** liabilities - wages to employees, unpaid dividends to shareholders. The capital structure of a ***** ***** to be selected according ***** many criteria, which will further on present in this paper. Funds, which are the eng*****e behind the performance ***** a company on the market, must be raised by all means and methods - from the creditors, suppliers, banks, populati*****, 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 ********** present the situation.

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

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

*****) Capital structure and time are strongly correlated terms, with the historic elements **********g ***** ***** 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 ********** ***** the behavior ***** companies back in ***** '80s. The financial statements indicate that, in the past, companies decided to accept an extra financial leverage, reaching an important amount from the total assets, in order to consolidate the corporate control. (Harris and Raviv -1991, page 334). The situation is today somehow different because commercial entities prefer to balance ***** assets with their liabilities. The differentiation policy is well used also in the ***** market - managers engage in different f*****ancial projects in order to diminish ***** risk - for ***** issue shares, bonds and other securities, take loans and credits and ask for refundable funds (subsidies, structural funds). The business risk *****ion 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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