Capital Structure and Firm Size: A Critical Analysis

Running head: MA W7 POST
MA W7 POST
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MA W7 POST
Capital structure can be considered to be very crucial for all business concerns as it is
the way firm funds and overall operations along with growth by means of different sources of
finances (Robb & Robinson, 2014). There are necessarily different classes as well as types of
capital that comprise of long term as well as short term debt, common equity together with
preferred equity. In essence, debt to equity ratio of a business concern is what financiers
indicate towards when viewing at structure of the capital. In itself, this delivers insight
regarding the extent of riskiness of the company. Essence, the business concern comes in the
shape of bond issues or else notes payable during the long term, while equity can be
categorised as common stock, preferred stock else wise retained earnings. Zeitun & Tian
(2014) assert that there are different theories regarding structure of the capital, mentioning
practical implication along with strengths along with weaknesses of these themes. However,
in the present case, I disagree with the given statement.
Essentially, it can be said that overall size of the corporation might perhaps influence
overall capital structure together with availability of finances from diverse sources. Zeitun &
Tian (2014) say that a small sized business concerns finds it difficult in acquiring long term
objectives. Also, a large sized business concerns has comparatively greater flexibility in
formulating structure of the capital. Therefore, it can acquire credits or loans on simple terms
and market different ordinary shares, different preferences shares along with debentures to
the public. Thus, it can be hereby mentioned that size of the business concern necessarily
exerts an influence on overall amount along with costs of the funds, but does not ascertain
overall pattern of funding. Instinctively, the point of disagreement that says firm size matters
for different reasons can be justified. Particularly, when considered in terms of fixed costs of
acquiring external finances, large sized corporations have cheaper admittance to outer funds
for every dollar that is borrowed. Also, larger sized business concerns are more probable to
diversify funding sources of the firm. On the other hand, size might be considered as a proxy