1) First Observation:

Taxes are important in deciding the capital mix.

Since tax paid on debt is a tax-deductible expense for a company and
therefore bring down its effective cost to the company tend to prefer to
borrow than to sell ordinary or preference share.

2) Second Observation:
Different companies have different capital mix patterns.
Certain industries like cement, energy generation, or air transportation that
are heavily capital intensive tend to have higher level of debt. Commercial
banks generally have debt more than eight times their equity due to then
nature of their business.

3) Third Observation:
Within each industry, leverage in inversely related to profitability of a
company.
This means that companies that are more profitable, have relatively lower
levels of debt then the other companies in the sane industries.

4) Fourth Observation:
Ownership structure has the greatest influence on the capital structure of a
company.
The owner of the company namely the shareholders, have the greatest say in
the constitution of its long-term capital, Family owned companies, or
companies whose majority share are held by close group of friend, elect
virtually the entire board of directors and run the company without allowing
any other stakeholder (including the minority shareholder) to have any say in
the operation of the company.

5) Fifth Observation:
Leverage levels inversely related to perceived cost of financial distress.
Cost of financial distress means the cost associated with failure to meet
financial obligation. The greatest of these cost is possibility of creditors
filling for companys liquidation. If a company feels that a higher level of
debt will lead them to bankruptcy, they refrain from increasing their debt and
relay more on equity. This reliance on equity could be in the form of
retaining earning (i.e. not paying cash on dividends) or issuing new share to
meet their capital need.
6) Sixth Observation:
Different culture and social norms prefer different capital structure.
Certain countries to have a positive view of reliance on deb; other do not.
For example, many Islamic countries are against the idea of long term debt,
preferring to have either an all equity funded company or to have hybrids.

7) Seventh Observation:
Companies prefer to stay within their target debt zone, and if they are forced
by circumstances to depart from their preferred leverage level, they tend to
revert to it as soon as possible.
This observation is true of both developed and developing countries. Each
company has a preferred debt zone, e.g. some companies prefer to have 25%
to 35% of their total capital employed in the form of debt. If due to a sudden
acquisition, they are forced to borrow more funds, thereby increasing their
leverage to say 65%, they will try to repay the loan (through issue of fresh
share or disposal of some other subsidiaries) as soon as possible after the
situation stabilizes following the acquisition.