Important factors in determining the capital structure of a company. The influence of the external environment on organizations emanoil muscalu dumitru iancu elisabetaemilia halmaghi lucian blaga university, sibiu, nicolae balcescu land forces academy, sibiu the dynamics and complexity of external environment causes changes in organizations overall activity. An analysis of factors affecting the capital structure and. Pdf nowadays, every company is in a very difficult position because the competition is tough. Chapter iii concepts and theories of capital structure and profitability. High debt in the capital structure is risky and may be a problem in adverse times. But there are always some other factors which firms take into consideration while making capital structure decisions. The study concluded that there are a number of factors affecting the capital structure of microenterprises and that microenterprises prefer borrowing from various external sources and this affects the capital structure of the microenterprises. External factors include banks and other financial institutions.
Equity, on the other hand, is shareholders money and payment depend on profits being paid. Key factors influencing capital structure decision and. Factors affecting the profitability of insurance companies. Firms consider this factor at the time of capital structure decisions. Internal factors affecting the capital structure of small and mediumsized enterprises. Statutory obligations play important role in capital structure decision. Capital structure, as its name itself signifies, is the composition of the capital employed by the firm from various sources of finance. Pdf critical internal and external factors that affect. Factors, which might affect the profitability of insurance companies, can be internal or external factors. This is imperative as the corporate sector in nigeria is. Factors affecting capital structure decisions mba lectures. This analysis is grounded on agency theory and pecking order theory. Issn 24148385 online issn 24148377 print european journal of multidisciplinary studies janapr 2016 vol.
Factors affecting capital structure decision of a firm are therefore critical. A constant inflow of funds has to be ensured to keep the daily operations of the company motoring along smoothly. Some of the chief factors affecting the choice of the capital structure are the following. The factors influencing and importance of financial. During the depression period, the companys capital structure generally consists of debentures and loans. Various internal and external factors can change the weighted average cost of capital for a company over time.
Factors that determine the capital structure among micro. Internal factors, fully explain it by pdf and free download, and what is. The aim of the paper is to identify internal and external factors affecting business excellence. Ronoowah 1995 examined that the empirical research on capital. Environmental factors affecting business by jack onyisi abebe introduction environmental factors can have an impact on project management even in environments that are relatively stable. Therefore, financial managers with regard to the use of capital costs cost of capital and other costs need to determine the capital structure in an effort to. The patterns of corporate capital structures around the world are also discussed. Our first contribution comes from assessing the importance of firmspecific factors, countrylevel factors and industrial factors for capital structure decisions in turkish banking sector. Capital market conditionin the lifetime of the company, the market price of the shares has got an important influence. Bonds pay interest to investors until the maturity date. Capital structure of the business affects the profitability and financial risk. The identification of factors affecting a firms choice of capital structure has long been a subject of debate. The capital structure puzzle is unravelled and a clear picture is presented in terms of why capital structure matters. Thus, the early stage of venture creation activities is generally affected or even constrained by a variety of internal and external factors.
It is the employment of an asset source of finance for which. With your download, get the 37 best papers relevant to this one, including 9 top related papers. Factors that affect human resource management hrm activities were divided into two, as internal and external elements. The study examined the factors influencing the capital structure of small businesses, including ownermanager traits, firm characteristics, management performance, external factors and ethnicity. Internal and external factors that affect working capital in any business, managing working capital is a neverending task for the finance and accounting personnel. A best capital structure is the one which results in maximizing the value of equity shareholder or which brings rise in the price of equity shares.
The main objective of this paper is to analyze the factors determining the capital structure of indian companies. Hence, it is essential that these should be kept in view at the time of formulating capital structure. The word capital refers to the investment of funds in business while structure means arrangement of different components in proper proportion. What are the external factors affecting capital structure. From access to capital, to access to technology, to access. The basic aim of this study is to present and examine environmental factors affecting human resource activities, which based upon a research conducted on turkish large firms. Internal and external factors that affect working capital. Questionnaires were distributed to get information needed.
There are several factors on working capital in terms of the economy including the domesticglobal economy, marketing conditions, business, political, and environmental risks. Generally companies use the concept of financial leverage to set up capital structure. The concept of financial decisions, the factors influencing financial decisions. Factors affecting the capital structure of a company. Capital structure definition the capital structure is how a firm finances its overall operations and growth by using different sources of funds.
Effects of internal and external factors on business. The influence of macroeconomic factors on capital structure is examined in this paper. Companies use a variety of methods to raise capital needed to finance operations and expansion. External factors affecting the capital structure of small and mediumsized enterprises. Research eriotis 2007 with the title how firm characteristics affect capital structure. Factors affecting capital structure of go public manufacturing. But no theory cannot explain which ideal factors that have. Debt interest has some tax deductions that is not the case for dividends paid to equity holders. This is a study on critical internal and external factors that affect the strategic planning of land developers in malaysia. According to university of chicago professor gary s. Capital structure and stock returns are important parts of the analysis of a companys financial statements. Human capital is a combination of employee competencies and their commitment to the organization for which they work.
Most favourable proportion determines the optimum capital structure. If companies use external financing, firms first favour debt above equity baker. While in period of boons and inflation, the companys capital should consist of share capital generally equity shares. Internal and external analysis ammattikorkeakoulut. What factors are influencing the determination of capital. Hence, while planning and formulating it, all those factors and elements should be well considered, which affects it. The external factors which are affecting the capital structure are as follows. Analysis on the factors affecting the capital structure of. On the maturity date, the company must pay the full redemption value back to the investor. An analysis of capitalstructure of business, can help in determining how risky it is to invest in a business. The nature of business can have strong effect on the pattern of capital structure. The home country determined differences both in the capital structure and performance of the firms, mainly because of the different tax rates from every country, but also because of institutional factors and the different levels of government intervention in the economy.
The focus of this study is to discuss these factors influencing the capital structure of quoted companies. Factors affecting capital structure decisions your business. Capital budgeting usually involves calculation of each projects future accounting profit by period, the cash flow by period, the present value of cash flows after considering time value of money, the number of years it takes for a projects cash flow to pay back the initial cash investment, an assessment of risk, and various other factors. The internal factors which are affecting capital structure are as follows. An intangible asset, human capital is the workforce a company employs. An analysis of factors affecting the capital structure and return on. Factors which influence the decision of capital structure. Second, capital structure affects companys solvency key financial ratios like debt ebitda and debt equity are dependent on capital structure. Businesses are impacted by a number of factors, some internal and some external. Political forces within and outside the country have.
However, if the company requires funds permanently it may depend on equity. Capital structure decisions are very important for companies to make. Under the capital structure, decision the proportion of longterm sources of capital is determined. If the economy is in state of depression, preference is given to equity form of capital which involves less amount of risk but it is avoided in some cases where the investor is not ready to take the risk. An analysis of factors affecting the capital structure and return on shares with family. The influence of capital structure on financial performance. First, it determines which part of companys assets is funded by shareholders and which is attributable to lenders. The elements or factors affecting capital structure may be divided into the following parts. In other words, these factors affect the opportunities of starting new businesses and their business performance through more complex structures rather than one direction. Factors affecting the capital structure the dependent variable are. One such external factor is the fluctuation of interest rates. While managers may not be able to control external forces, it is essential they identify and understand them. That happens to be the need of the company because eps happens to be the maximum on it.
This fund may be obtained from internal and external sources. An analysis of factors influencing the capital structure. While planning the capital structure, the company needs to consider. Apart from general and internal factors some other. Tangibility, profitability, size, eps, growth and interest rate will be included in this studys model. The thesis objective was to investigate the internal and external environments of the case company, find the factors affecting the companys performance and competitiveness and to make strategic recommendations based on these findings, in order to improve the companys competitiveness. Following are the external factors affecting organizational change.