There are various factors that affect a company's capital structure. Investors and the general public are both critical in a company's financial structure. An investor refers to an individual or entity who has put money, assets, or anything of financial value into the company, intending to eventually acquire financial gains. Most of the time, an individual makes investment by purchasing the company's assets. Examples of investments include debt securities, equity, real estate, currency, and commodity. The general public mostly acts as a stakeholder to the company. They are part of the financial pool as they act as customers and clients. The general public could be shareholders in a company by purchasing shares open to the public.
Capital markets are essential to a company's savings and investments, and investors play a significant role in the growing and evolving of capital markets. The investors provide capital to the company for its operational use. The companies seeks to attain short term profits by buying and selling securities. Investors always aim for long term profits and leave the assets to multiply and flourish under the company. Investors also help to build capital markets by clearing and settling payments. The funds and assets generated y investors come in handy when the company is paying its bills and debts. Investors are also active participants in the capital market, as most of them purchase shares and become shareholders of the organization.
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Financial institutions play a significant role in the capital market. They contribute to the diversification of risks. This means that these institutions share the securities and reduces the risks handled by each entity. This happens by creating balance, whereby the losses incurred by other investments are offset by gains from other investments. These institutions are beneficial because they create security for the company or organization. Even when getting a loan, the organization could use the financial institution investors as collateral.
The government contributes to the capital market by providing subsidies and tax requirements for the public and organization. The government also creates tax regulations and foreign policies that make domestic products and services more lucrative to the international market (Cox, 2007) . The government also provides efficiency by attempting to correct market failures such as monopoly and excessive pollution. The government also provides the infrastructure that influences the output level and production efficiency.
The stability of sales is a significant factor influencing decisions regarding the capital structure of corporations. It improves the organization's ability to pay interest on debentures. In the event of rising sales, the corporation could utilize more debt capital, as it is in a position to pay interest. However, when the sales are low, the corporation is not advised to use more debt capital. Another factor influencing corporate decisions in the capital structure is expected cash flows. The expected cash flows must be sufficient and enough to pay interest on debentures and meet the deadline when returning the maturity amount at the end of the term of the debenture. Therefore companies with irregular and uncertain cash flows are not advised to seek debentures. These factors' influence on the corporation is set to change over time. They could have a much different impact on the organization. For instance, when an organization becomes financially stable, they are much eligible to seek debentures because of their expected cash flow stability. A corporation could also expand its branches or discover a market niche that provides stability in its sales. This also puts the corporation in a better position to acquire debentures. Capital markets generally refer to the markets used for any financial assets. It allows buyers and sellers to participate and trade financial securities like bonds and stock, trading them to fellow individuals and institutions (Oganga, 2019) .
References
Cox, C. (2007). SEC Speech: The Role of Government in Markets (Christopher Cox; October 24, 2007). Retrieved 18 January 2021, from https://www.sec.gov/news/speech/2007/spch102407cc.htm
Oganga, S. (2019). Evolution of the Capital Market. Retrieved 18 January 2021, from https://www.questjournals.org/jrhss/papers/vol7-issue7/Ser-1/L0707015572.pdf
