There is a link between the economic and financial structure to the extent that the development of the economic structure may end up influencing the evolution of the financial system. We are talking about countries, but also about companies.
Empirical studies provide evidence of a positive link between the functioning of the financial system and economic growth.. While most of the published research focuses on the link between financial system development and economic growth, achieving a sufficient understanding of the emergence, development and economic implications of different financial structures across countries or organisations can be challenging.
For example, at the macro level, the real economic structure determines the shape of the financial system. The results confirm that:
These results suggest that the structure of the real economy can determine the structure of the financial system.
One might think that the reason for this link is that the financial system simply anticipates the development of the financial needs of the economy and develops accordingly.
However, the structure of the real economy may lead to the development of certain characteristics of the financial system, because the main forces determining the composition of the economy are external to finance, The main factors to be taken into account are a country's geographic attributes (available natural resources and location, above all) and its industrial policies, among others.
Like the capital structure, the financial structure of a business is divided into:
Every company has a different mix, depending on their needs and expenses. Therefore, each company has its own debt-equity ratio. For example, an organisation could issue bonds and use the proceeds to buy shares or it could issue shares and use the proceeds to repay its debt.
When talking about economic and financial structure, it is also relevant to compare the latter with the capital structure..
While a capital structure and a financial structure include information on long-term financing and common stock, preferred stock and retained earnings, they do not provide any information on the financial structure of the company. information on short-term debt obligations.
A financial structure includes both short-term and long-term obligations in its calculation. And, in this sense, capital structure can be seen as a subset of financial structure that is more oriented towards long-term analysis, while the financial structure provides more reliable information regarding the current circumstances of the business.
