In other words, these factors affect the opportunities of starting new businesses and their business performance through more complex structures rather than one direction. External factors affecting the capital structure of small and mediumsized enterprises. This is imperative as the corporate sector in nigeria is. 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. High debt in the capital structure is risky and may be a problem in adverse times. Most favourable proportion determines the optimum capital structure. Some of the chief factors affecting the choice of the capital structure are the following. While in period of boons and inflation, the companys capital should consist of share capital generally equity shares. Equity, on the other hand, is shareholders money and payment depend on profits being paid. Firms consider this factor at the time of capital structure decisions.
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. Effects of internal and external factors on business. Hence, it is essential that these should be kept in view at the time of formulating capital structure. Pdf external factors and capital structure researchgate. Internal and external factors that affect working capital. Internal and external analysis ammattikorkeakoulut. Factors affecting the profitability of insurance companies.
Research eriotis 2007 with the title how firm characteristics affect capital structure. Factors affecting the capital structure of a company. With your download, get the 37 best papers relevant to this one, including 9 top related papers. Apart from general and internal factors some other. Important factors in determining the capital structure of a company. An analysis of factors influencing the capital structure. An analysis of factors affecting the capital structure and. The word capital refers to the investment of funds in business while structure means arrangement of different components in proper proportion. But no theory cannot explain which ideal factors that have. Pdf nowadays, every company is in a very difficult position because the competition is tough.
Businesses are impacted by a number of factors, some internal and some external. There are several factors on working capital in terms of the economy including the domesticglobal economy, marketing conditions, business, political, and environmental risks. The capital structure of the firm represents its investment and financing strategy. The nature of business can have strong effect on the pattern of capital structure. An analysis of capitalstructure of business, can help in determining how risky it is to invest in a business. Factors which influence the decision of capital structure. The aim of the paper is to identify internal and external factors affecting business excellence. 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. Capital structure decisions are very important for companies to make. Tangibility, profitability, size, eps, growth and interest rate will be included in this studys model. Statutory obligations play important role in capital structure decision. But there are always some other factors which firms take into consideration while making capital structure decisions.
Human capital is a combination of employee competencies and their commitment to the organization for which they work. 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. A constant inflow of funds has to be ensured to keep the daily operations of the company motoring along smoothly. Deciding about the capitalstructure of a firm involves determining the relative proportion of various types of funds. The elements or factors affecting capital structure may be divided into the following parts. Factors affecting capital structure decisions mba lectures. Companies use a variety of methods to raise capital needed to finance operations and expansion.
The identification of factors affecting a firms choice of capital structure has long been a subject of debate. Thus, the early stage of venture creation activities is generally affected or even constrained by a variety of internal and external factors. Debt interest has some tax deductions that is not the case for dividends paid to equity holders. This fund may be obtained from internal and external sources. The patterns of corporate capital structures around the world are also discussed. Hence, while planning and formulating it, all those factors and elements should be well considered, which affects it. The concept of financial decisions, the factors influencing financial decisions. Factors that affect human resource management hrm activities were divided into two, as internal and external elements. Capital structure, as its name itself signifies, is the composition of the capital employed by the firm from various sources of finance. Factors affecting capital structure decisions your business. Factors affecting capital structure decision of a firm are therefore critical. If companies use external financing, firms first favour debt above equity baker. One such external factor is the fluctuation of interest rates. What are the external factors affecting capital structure.
According to university of chicago professor gary s. Key factors influencing capital structure decision and. The factors influencing and importance of financial. Pdf critical internal and external factors that affect. The focus of this study is to discuss these factors influencing the capital structure of quoted companies. Factors affecting capital structure of go public manufacturing.
Factors that determine the capital structure among micro. Questionnaires were distributed to get information needed. Ronoowah 1995 examined that the empirical research on capital. 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. Identify the organizational factors affecting the efficiency of human capital a case study of the recreational and cultural organization of isfahan municipality ali atafar,saeed sharifi faculty member department of managment, university of isfahan, iran. Factors affecting the capital structure the dependent variable are. Capital structure definition the capital structure is how a firm finances its overall operations and growth by using different sources of funds. What are the internal factors affecting capital structure. An analysis of factors affecting the capital structure and return on shares with family. An intangible asset, human capital is the workforce a company employs.
Various internal and external factors can change the weighted average cost of capital for a company over time. What factors are influencing the determination of capital. 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. From access to capital, to access to technology, to access. 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. Capital structure of the business affects the profitability and financial risk. This analysis is grounded on agency theory and pecking order theory. Under the capital structure, decision the proportion of longterm sources of capital is determined.
All of these factors can affect a companys working capital and are major external factors. 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. The main objective of this paper is to analyze the factors determining the capital structure of indian companies. During the depression period, the companys capital structure generally consists of debentures and loans. However, if the company requires funds permanently it may depend on equity. An analysis of factors affecting the capital structure and return on. On the maturity date, the company must pay the full redemption value back to the investor. While planning the capital structure, the company needs to consider. Second, capital structure affects companys solvency key financial ratios like debt ebitda and debt equity are dependent on capital structure. Generally companies use the concept of financial leverage to set up capital structure. Internal and external factors that affect working capital in any business, managing working capital is a neverending task for the finance and accounting personnel. Becker, economists may refer to a workforce as human capital. The operating environment of small and mediumsized enterprises has important influence on the capital structure of small and mediumsized enterprises. Thus, pressure for changes is created by the internal and external forces.
It is the employment of an asset source of finance for which. Our first contribution comes from assessing the importance of firmspecific factors, countrylevel factors and industrial factors for capital structure decisions in turkish banking sector. The study examined the factors influencing the capital structure of small businesses, including ownermanager traits, firm characteristics, management performance, external factors and ethnicity. Internal factors affecting the capital structure of small and mediumsized enterprises. The aim of this study is to determine which factors have an influence on capital structure in asean region and each asean country. First, it determines which part of companys assets is funded by shareholders and which is attributable to lenders. Factors, which might affect the profitability of insurance companies, can be internal or external factors. The paper takes into consideration dependent variable being debt equity ratio and independent variables viz. Analysis on the factors affecting the capital structure of. The influence of macroeconomic factors on capital structure is examined in this paper. 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.
The external factors which are affecting the capital structure are as follows. Internal factors, fully explain it by pdf and free download, and what is. Political forces within and outside the country have. Chapter iii concepts and theories of capital structure and profitability. Following are the external factors affecting organizational change. The influence of capital structure on financial performance. External factors include banks and other financial institutions. That happens to be the need of the company because eps happens to be the maximum on it. 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. Bonds pay interest to investors until the maturity date. While managers may not be able to control external forces, it is essential they identify and understand them. There has been a lot of research conducted on these two components above. Issn 24148385 online issn 24148377 print european journal of multidisciplinary studies janapr 2016 vol.
The internal factors which are affecting capital structure are as follows. Capital market conditionin the lifetime of the company, the market price of the shares has got an important influence. Capital structure and stock returns are important parts of the analysis of a companys financial statements. This is a study on critical internal and external factors that affect the strategic planning of land developers in malaysia.
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