International Journal of Economics, Commerce and Management Research Studies

Volume 1, Issue 1, August - 2018

The Relationship between Corporate Strategy and

Capital Structure
Anchit Jhamb Swati Aggarwal
University School of Business University School of Business
Chandigarh University Chandigarh University
Gharuan, India Gharuan, India

Abstract:- There has been a great shift in the corporate
sector from profit maximization to wealth maximization
and corporates do have understood that to build a
positive image in the market and amongst the
stakeholders the company needs to develop its wealth
and with image building the loyalty of customers is the
important part, so to provide the quality services and
products is amongst the major needs and objectives of
the corporate sector but above each and everything it is
the money or the finance which impacts the decisions of
the company giving it the limitations for the investment
areas. So there is a huge impact of capital structure on
corporate strategy.
Keywords:- Capital Structure, Corporate Strategy,
Finance.
funds and very important what is the percentage of debt and
equity being used by the company because the optimum
capital structure is very important for the company to be
maintained as every kind of strategy which is being
implemented by the company will take some financial
decisions also and to raise the fund there is cost and very
importantly the inflows to the company should always be
greater than outflows that will make a company in profitable
or stable situation. And also it is very important to
understand that there are many factors which impact the
capital structure for the company and capital structure has
very big role in impacting the profitability of the firm.
Following are the various factors affecting the structure of
capital for the company.

I. INTRODUCTION

The term corporate strategy is the basic ingredient

which clears the complete fundamental that why a company
exists because corporate strategy means the complete scope
and directions in which all the corporate activities take place
to achieve the goals of the company with a major vision to
outperform the competitors and capital structure is the mix
of debt and equity of the company and it is a well-known
fact that finance is the lifeline of the company, a company
with proper financial policies can achieve the maximum
growth in the market so it’s very important to frame the
strategies in such a manner that finances of company is able
to support the strategies of the company or say a company
should manage its financial resources in such a manner that
strategies can be executed in a well-defined fashion and
make you a leader in the market.

II. RELATIONSHIP BETWEEN CORPORATE

STRATEGY AND CAPITAL STRUCTURE

There are many types of the corporate strategy but for
the sample based study the following strategies are taken to
be studied with capital structure now namely these strategies
have been divided into 4 parts like a) stability strategy b)
Expansion strategy c) Retrenchment strategy d)
Combination strategy and every strategy has its own
importance for the company and every strategy is prepared
by considering various factors of the company like whether
a company wants to make itself stabilized whether a
company wants to have some kind of expansion and
sometimes it’s possible that a company is using a mix of
various strategies for its better performance but above all its
very important to understand the financial position of the
company and its sources from where a company can raise
Fig 1:- Types of corporate strategy
The main features of corporate strategy are
 To have competitive edge.
 To achieve goals in well directed manner.
 To improve research and development.
 To use the resources in the best possible manner.
 To improve the profitability of the company.
 Strategically every decision will include the financial
decision as well.

IJECMRS18AG08 www.ijecmrs.com 5
 International Journal of Economics, Commerce and Management Research Studies
Volume 1, Issue 1, August - 2018
And in the same alignment the features of capital
structure says.
 To use the financial resources in such a manner that cost
can be reduced.
 To improve the profitability of the company.
 To avoid the financial risk by avoiding the debt capacity
of the firm.

Which proves a clear relationship between corporate

strategy and capital structure by the following points.

 Both corporate strategy and capital structure are aligned

to improve profitability.
 Both corporate strategy and capital structure are aligned
to improve the resource utilization.
 Strategically every decision is dependent on financial
availability of the company and capital structure is
directed in such a manner that best investment activities
can be used with all the available resources.
 Further it can be made understand that a management is
always bonded by its financial resources by using more
debt a company cannot threaten its liquidity and hence
all the decisions are to be taken very carefully.

III. CONCLUSION

Well, with the above mentioned features and relations

it can be easily proved that if a management wants to
execute any strategy it will have to consider the case of
availability of financial resources and hence after
considering all the situations and keeping in mind the future
of the company the management will take decision which
gives a clear indication with all the evidences that whatever
strategy a company wants to adopt will have to keep its
financial area in the broader view.

REFERENCES

[1]. http://www.businessdictionary.com/definition/corporate
-strategy.html.
[2]. https://www.quora.com/What-are-current-research-
topic-related-to-finance.
[3]. https://www.google.co.in/search?q=types+of+corporate
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AhWafH0KHZACB-
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[4]. http://www.publishyourarticles.net/knowledge-
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[5]. http://www.yourarticlelibrary.com/business/5-
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