Final answer:
The cost of managers' time on a securities issue is part of transaction costs, influencing investment decisions and utilization of financial capital. As firms establish themselves, personal knowledge of managers becomes less critical due to more widely available company information.
Step-by-step explanation:
The cost of the time that managers spend on an issue of securities is a kind of transaction cost. This includes both the direct financial aspects and the time and effort—that is, the non-monetary resources—expended to issue the securities. When looking at an investment, say with a 9% interest rate being the cost of financial capital, and the firm can capture the 5% return to society, the managers would operate as if the effective rate of return is 4%. This influences how much a firm decides to invest, for example, $183 million. Additionally, as a company becomes established, the need for investors to know managers personally diminishes due to the increased availability of information on the company's products, revenues, costs, and profits. This broader availability of information means external investors such as bondholders and shareholders can provide financial capital more readily.