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 ***** end, the auth***** ***** highlight his conclusions on the topic.

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Besides its savings and investments, a particular company must rely on foreign resources of financing in order to develop ***** activities or consolidate ***** c*****porate position on the market. Among the long term financing means one could mention common and preferential stocks, reinvested pr*****it ***** long term liabilities. The capital structure is different from the ***** structure of a corporation, which additionally includes other sources ***** capital, accounts payables and other types of ***** - wages to employees, unpaid divid*****s to shareholders. The capital structure of a ***** ***** to be selected according ***** many criteria, which will further on ***** in this paper. Funds, which are the engine behind the performance ***** a comp*****ny ***** the market, must be raised by all means ***** methods - ***** 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, offer*****g empirical examples that *****st present the situation.

Factors affecting ***** ***** structure

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

*****) Capital structure and time are strongly correlated terms, with the historic elements **********g the financial capital ***** of ***** corporation to a great extent. For example, firms from the p*****t may have been more prone to finance their ***** term activities and plans than companies do it nowadays. Let us make a comparison between companies *****day and the behavior of companies back in the '80s. The financial statements indicate that, in ***** past, companies decided to accept an extra financial leverage, reaching an important amount from the ********** assets, in order to consolidate the ***** control. (Harris and Raviv -1991, page 334). ***** situation is ********** somehow ***** because commercial entities prefer to balance ***** assets with ***** liabilities. The differentiation policy is well used also ***** the financial market - managers engage in different f*****ancial projects in order to dim*****ish ***** risk - for example ***** shares, bonds and other securities, take loans ***** credits and ask for refundable funds (subsidies, structural funds). ***** business risk notion 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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