Final answer:
Financial accounting information is crucial for managers as it provides essential details on the firm's financial health, thus attracting outside investors by reducing the asymmetry of information. Transparent reports include data about products, revenues, costs, and profits, making it easier for investors to provide financial capital.
Step-by-step explanation:
The most important way financial accounting information affects managers is by providing transparency that makes it easier for outside investors to assess the health and viability of a firm. When a company's products, revenues, costs, and profits are clearly reported, outside investors, such as bondholders and shareholders, are able to make more informed decisions about providing financial capital to the firm.
As firms grow and their business strategies seem increasingly likely to be profitable, the necessity of investors knowing managers personally diminishes because informative financial accounting allows for a wider pool of potential investors. This is rooted in the reality of imperfect information, a concept referring to a lack of full and equal information among buyers and sellers, which can influence decisions in raising financial capital. Managers within a firm naturally possess more intimate and detailed knowledge of the company's potential than outside investors. Hence, detailed financial reports are crucial for bridging this information gap and ensuring that firms can secure the capital needed for continued growth and operation.