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The Major Issues in the Debate Regarding the Existence of an Optimal Capital Structure - Term Paper Example

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"The Major Issues in the Debate Regarding the Existence of an Optimal Capital Structure" contains the definition and the characteristics of the optimal capital structure are going to be presented offering a thorough explanation on the structure of the firm’s financial resources and their investment…
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The Major Issues in the Debate Regarding the Existence of an Optimal Capital Structure
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Download file to see previous pages The level of capital has been used as a criterion for the classification of a company within its market. Regarding this issue it is noticed by Penrose (1952, 810 in Cooper, 1997, 750) that ‘positive profits can be treated as the criterion of natural selection -- the firms that make profits are selected or 'adopted' by the environment, others are rejected and disappear’On the other hand, Ruhnka (1985, 45) supported that ‘the primary source of capital for most start-up and development stage companies is equity capital raised through limited stock offerings that are exempt from expensive federal and state registration requirements’. In other words, the capital of the firm can be formulated through a series of initiatives; however its appropriate distribution throughout the corporation is a difficult task that should be based on the needs of the firm in the long term, its current financial strength and the willingness of its shareholders. It seems in any case that all firms internationally are given specific chances in order to survive within their industry. Towards this direction, it is mentioned by Davidsson et al. (2003, 1) that ‘firms that have succeeded in surviving two to three years and that have gone through a number of crucial phases attain a stable foundation from which they can continue to develop’. In accordance with the above, firms have more chances to survive in the long term if they have managed to operate continuously within a specific market for a particular period of time. Current paper deals exclusively with the optimal capital structure as part of the corporate entity. The definition and the characteristics of the optimal capital structure are going to be presented offering a thorough explanation on the structure of the firm’s financial resources and their investment both in the short and the long term.

Many efforts have been made in order to explain the elements and the role of optimal capital structure within modern firms. Before explaining optimal capital structure, it would be useful to refer to capital structure in general. ...Download file to see next pagesRead More
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