Market management and Floatation costs
Market condition: there are two main conditions of market i.e., boom condition and recession or depression condition. There conditions affect the capital structure specially when company is planning to raise additional capital. Depending upon the market condition the investors may be more careful in their dealings.
During depression period in the market business is slow and investors also hesitate to take rise so at this it is advisable to issue borrowed fund securities as these are less risky and ensure fixed repayment and regular payment of interest but if there is boom period, business is flourishing and investors also take risk and prefer to invest in equity shares to earn more in the form of dividend.
Floating costs: floating cost is the cost involved in the issue of shares or debentures. These costs include the cost of advertisement, underwriting statutory fees etc. it is a major consideration for small companies but even large companies cannot ignore this factor because along with coat there are many legal formalities to be completes before entering into capital market. Issue of shares, debentures requires more formalities as well as more flotation cost. Where as there is less cost involved in raising capital by loans or advances.