information about the firm’s operations.

As a firm becomes at least somewhat established and its strategy appears likely to lead to profits in the near

future, knowing the individual managers and their business plans on a personal basis becomes less important,

because information has become more widely available regarding the company’s products, revenues, costs,

and profits. As a result, other outside investors who do not know the managers personally, like bondholders

and shareholders, are more willing to provide financial capital to the firm.

At this point, a firm must often choose how to access financial capital. It may choose to borrow from a bank,

issue bonds, or issue stock. The great disadvantage of borrowing money from a bank or issuing bonds is that

the firm commits to scheduled interest payments, whether or not it has sufficient income. The great advantage

of borrowing money is that the firm maintains control of its operations and is not subject to shareholders.
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