The characteristics of a company in terms of size and credit standing, among others, also vital role in determining the share of senior securities and equity in its capital structure. The management’s freedom of choice is extremely limited in the case of small and companies. Companies that are very small must rely, to a considerable degree, upon the funds for their financing; they find it very difficult to obtain long-term debt. In the investors generally a small firms are considered to be more risky than large firms. Therefore, firms do not have ready access to different types of funds from various sources. They are in a weak bargaining position in obtaining funds. Since their sources of raising funds are can assign larger weights to the factor or flexibility. In contrast, very large companies are make use or different sources of raising funds as no single source can cater to their requirements of funds.

Firm’s enjoying a high credit standing among investors/lenders in the capital market are in a position to get funds from the sources of their choice. If the credit standing is poor, the choice of obtaining funds is rather limited.

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