Final answer:
The most important source of external financing for corporations is the bond market. This is because bonds are a more significant source of capital, are less expensive to issue than stocks, and offer tax benefits. Mortgages are less relevant as they are specific to real estate financing and not a primary method for corporate fundraising.
Step-by-step explanation:
The most important source of external financing for corporations among the options provided is the bond market. While retained earnings represent internal financing, corporations frequently turn to the bond and stock markets for external financing. However, bonds are typically seen as a more vital source due to their widespread use and the fact they usually bring in larger sums of capital compared to individual stock offerings. It is also less expensive to issue bonds than stocks and they carry tax benefits. Mortgages, on the other hand, are more specific to real estate financing and are not the core method for raising corporate capital.
When considering early-stage corporate finance, firms have different options for accessing financial capital. Very small companies tend to raise money from private investors as they may not have the prerequisite scale for an Initial Public Offering (IPO). Once a company grows, it might prefer an IPO to raise funds without having to commit to regular debt repayments, despite giving up some control and ownership. Venture capitalists often have more intimate knowledge of a firm's potential than potential bondholders because they engage more directly with the management and operations of the firm. Comparing a bond to a bank loan from the firm's perspective, both involve borrowing and the obligation to make scheduled payments; however, a bond is a tradeable security while bank loans are not.