Introduction
The impact of the investment in the company is essential for it can help the foundation and improvement of the business. Most of the companies are utilizing the other financial sources to help additional needs for resources. The combination of the investment and the investment are common actions of the company which are sometimes called as the working capital.
Background of the Study and Problem Statement
Investments are needed to establish the kind of business that will help the economy to regulate it financial stability. Investments may come in different sources but the most popular source came from the debtors who are willing to support the firm’s production or selling activities. In the study, the main topic comprises the best financing option/s for the company.
Research Objectives
The objectives of the study are divided into two. First is to determine the best financing option for a company which is in line to the company’s goal and positioning in the market. And second, which is related to the first objective, is to determine the duration of the collaboration or the relationship in medium or long terms.
Research Questions
The study recognized the different factors that might affect its completion and therefore, the questions are presented to help study meet the objectives.
1. What are the reasons of the financial sources in helping the company?
2. What are the common objectives of the financial sources which are also facets of the objectives of the company?
3. What are the opportunities available for the collaboration of the companies and the financial sources?
Literature Review
Corporate financing is a product of market decisions that was blended with the pure investment and debt financing. The impact of corporate debt financing will be seen competitive outcomes. In studies, the firms with low debt ratios is actually their debt capacity, firms will experience stronger product market performance than their highly indebted rivals. Specifically, cash is not the same as negative debt when reducing debt and does not guarantee the ability to access similar debt conditions in the future when debt capacity diminishes. When a firm has a saturated debt capacity when it faces financial constraints and when its investment opportunities tend to arrive when cash flows are low when hedging needs are high (Fresard, 2009). Issuing debt in a capital structure has a wide-ranging in terms of costs and benefits. In an overview, the capital structure depends on the specific circumstances of the firm and overall development of the capital market infrastructure. In different industry, the high leverage can reflect poor corporate governance that exerted too much control over firms. The more focus on size and market share while downplaying return on investment (Haksar and Kongsamut, 2003). The more likely to use debt financing as opposed to raising equity and diminishes the control on the ownership. And with this scheme of high leverage is the main symptom in making the sense of governance weaker. When there is a presence of the large shareholder that will dominate the ownership of companies, the pursuance in financing policy has characterized the equity and dominating the companies in their respective industries. The usual strategy in company’s expansion projects is also expanding their investments in using borrowed funds although the returns on those investments are declining (Saldaña, 1999). It is because larger companies that have superior access in debt financing is used to apply this kind of strategy, that results in further concentration in industry sales.
Methodology
The applied methodology of the study is the use of comparative case study which emphasizes the use of past literatures in meeting the analysis of the study. The applied method allowed the study to assess the different insights of the authors. As being part of the analysis, the study identified that the financial constraint of the firm is based on their asset size and assign to the quartile of the size distribution. It is said that the strong market effectiveness of the firm is usually depends on how strong the positive debt against the negative debt, that can support the continuous financial cycle. In this event, the best framework or position that the company needs relies on the control of the business in utilizing the sources as well as adopting the knowledge of working capital.
Conclusion
The company that can realize the benefit more than the costs of the financial support can reflect on building the strategic goals and market position. Organizational leaders should understand the consequences of their actions. If they allowed too much financial support, they might end in losses. Therefore, the partnership should be build between them.
References:
Fresard, L., 2009. Financial Strength and Product Market behavior: The Real Effects of Corporate Cash Holdings. Journal of Finance [Online] Available at: http://www.afajof.org/afa/forthcoming/6386p.pdf. [Accessed 11 Feb 2010].
Haksar, V., & Kongsamut, P., 2003. Dynamics of Corporate Performance in Thailand. International Monetary Fund [Online] Available at: http://www.imf.org/external/pubs/ft/wp/2003/wp03214.pdf. [Accessed 11 Feb 2010].
Saldaña, C., 1999. Conference on Corporate Governance in Asia: A Comparative Perspective. Philippine Corporate Governance Environment and Policy and their Impact on Corporate Performance. [Online] Available at: http://www.oecd.org/dataoecd/7/55/1931508.pdf. [Accessed 11 Feb 2010].
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