p executives who run the firm have a strong voice in choosing the candidates
412 17 • Financial Markets

who will serve on their board of directors. After all, few shareholders are knowledgeable enough or have

enough personal incentive to spend energy and money nominating alternative board members.

How Firms Choose between Financial Capital Sources

There are clear patterns in how businesses raise financial capital. We can explain these patterns in terms of

imperfect information, which as we discussed in Information, Risk, and Insurance, is a situation where buyers

and sellers in a market do not both have full and equal information. Those who are actually running a firm will

almost always have more information about whether the firm is likely to earn profits in the future than outside

investors who provide financial capital.

Any young startup firm is a risk. Some startup firms are only a little more than an idea on paper. The firm’s
{"producer": "Prince 14.2 (www.princexml.com)", "moddate": "2022-12-07T14:23:05-06:00", "file_type": ".pdf", "file_name": "Microeconomics3e.pdf", "uploaded_via": "batch_uploader", "batch_upload": true, "source_file": "downloads\\business\\economics\\Microeconomics3e.pdf", "total_pages": 597, "creationdate": "2022-12-07T14:15:44-06:00", "source": "downloads\\business\\economics\\Microeconomics3e.pdf", "file_hash": "830b81f41611ac67a490444dbb5d6aed292224606965b06965b914443c93331a", "upload_timestamp": "2026-02-07T15:24:38.309401", "title": "Principles of Microeconomics 3e", "creator": "PDFMiner", "file_size_mb": 26.99}