Final answer:
Detailed financial statements can offer more insight than platform ratings in marketplace lending but don't always guarantee better lender decisions due to varying lender sophistication. The choice of financing between private investors, IPOs, and debt is influenced by the level of information symmetry between company insiders and external financiers.
Step-by-step explanation:
Detailed financial statements may be more predictive of funding success in marketplace lending than simple ratings provided by the platform because they offer deeper insights into a company's financial health and potential for profitability. However, it's not definitively proven that they always lead to better decisions by lenders. In marketplace lending, lenders vary in their sophistication. Some may rely solely on platform-provided ratings for convenience or due to a lack of financial expertise. Others may delve into financial statements for a more thorough analysis.
When a firm is choosing how to raise capital, those running the company typically have more information about future profits than external investors due to imperfect information. This imbalance is a factor in whether companies opt for private funding, public offerings (IPO), or debt. For example, very small companies often raise money from private investors to avoid the complexities and regulatory requirements of an IPO.
As for an IPO, small, young companies may prefer this over debt because it does not require regular interest payments and dilutes ownership rather than creating a fixed obligation. Furthermore, a venture capitalist typically has better information on a firm's potential for profit than a potential bondholder because of closer involvement and access to internal operations and detailed financials.