Final answer:
Imperfect information provides better details to those internal to the firm, financial information is vital for outside investors, and financial statements are key for evaluating a company's financial health.
Step-by-step explanation:
When seeking to understand how firms choose between financial capital sources, it is essential to consider the concept of imperfect information, which indicates that there is an asymmetry of information between those running a firm and outside investors. Hands-on managers typically possess more intimate knowledge of the firm's potential for future profits, giving them an edge in decision-making.
As a company becomes more established, the need for close personal knowledge of managers by outside investors, such as bondholders and shareholders, diminishes because the company's products, revenues, costs, and profits become more transparent. This wider availability of information allows outside investors to make more informed decisions about providing financial capital to the firm without requiring a personal connection to its managers. Therefore, imperfect information provides better details to decision-makers internal to the firm, financial information is the focus for outside investors like bondholders and shareholders, and financial statements are of primary interest to those evaluating the company's financial health.