Final answer:
A firm likely earns above normal economic performance if it can easily attract additional capital from debt holders and equity holders due to its strong economic returns and perceived lower investment risk.
Step-by-step explanation:
A firm that can attract additional capital because both debt holders and equity holders are eager to provide it is likely earning above normal economic performance. These stakeholders are usually willing to invest more in a company that demonstrates superior economic returns, as it promises higher rewards compared to average or normal performing companies. Such performance is an indication that the firm has developed a competitive advantage, which might stem from a variety of factors such as strategic positioning, innovative products, or operational efficiency. Typically, firms that can consistently generate significant revenues and profits offer confidence to lenders and investors that their financial commitments will be honored, thus making capital more readily available.
Companies have different options for raising financial capital, including borrowing from banks, issuing bonds, or selling stocks. Each method comes with its advantages and trade-offs. Borrowing from a bank or issuing bonds obliges the firm to make scheduled interest payments, which can be challenging during times of insufficient income. However, this allows the company to maintain control over its operations without the influence of shareholders. On the other hand, issuing stock entails selling ownership to the public, thus making the firm accountable to a board of directors and its shareholders.