Final answer:
Firms with low initial capitalization can potentially grow faster due to necessary innovation and efficient resource management, but growth is not guaranteed. Early-stage firms need to attract investments by demonstrating potential profitability to investors. Established companies also require external financial capital for investments, often paying interest to investors.
Step-by-step explanation:
Firms with low initial capitalization do have the potential to grow faster because they may have a greater necessity to innovate and manage resources efficiently.
However, this potential for growth is not guaranteed and depends on various factors, including the nature of the industry, the skill of the management team, and the firm's ability to attract additional financial capital when needed.
Early-stage firms often face the challenge of demonstrating their ability to earn profits to secure financial investments. This is because investors need confidence in the firm's potential to generate a rate of return on their investment, which is typically unproven at this stage. Without an established customer base or earnings, these startups need to convince investors of their potential through business plans, prototype demonstrations, and market analysis.
Conversely, many established companies, such as General Motors or technology startups, despite larger operations, may also seek external financial capital to fund desired investments and are willing to pay interest to achieve a rate of return for the investors' financial capital.