- What is capital structure?
- What factors affect capital structure?
An internal factor that affects capital structure is how the money is going to be invested. Low risk investments will only provide low interest rates but where there is increased risk then the interest rates will be significantly higher. This is because there is less likelihood of the money being paid back.
The economy is a major external factor. When economic conditions are good and people have more capital they are more likely to take risks with their investments. If the economy is depressed and capital is in short supply, investors will seek low risk investments.