Part 1Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States is true? Part 2
A. Stocks and bonds combined supply more than one-half of the external funds B. Bonds are a far more important source of financing than are stocks C. Since 1970, more than half of the new issues of stock have been sold to American households D. Financial intermediaries such as banks are the least important source of external funds for businesses

Question

Part 1Which of the following statements concerning external sources of financing for nonfinancial businesses in the United States is​ true? Part 2
A. Stocks and bonds combined supply more than​ one-half of the external funds B. Bonds are a far more important source of financing than are stocks C. Since​ 1970, more than half of the new issues of stock have been sold to American households D. Financial intermediaries such as banks are the least important source of external funds for businesses

BlackTom AI · Accepted Answer

When evaluating external sources of financing for nonfinancial U.S. firms, it's helpful to compare the roles of debt and equity, and the importance of financial intermediaries.
Option A: 'Stocks and bonds combined supply more than one-half of the external funds.' While both debt and equity contribute to external funding, it is not universally established that their combined issuance consistently exceeds one-half of all external funds in every period. Depending on the era and measurement, this statement can be misleading because debt issuance (especially corporate bonds) often dwarfs equity issuance, but absolute proportions can vary, and the assertion may overstate or misstate typical shares at different times.
Option B: 'Bonds are a far more important source of financing than are stocks.' Across many years, debt financing through bonds has historically provided a larger and more stable share of external funds to nonfinancial corporations than equity financing via stocks. This reflects preferences for leverage, tax advantages, and lower issuance costs for debt relative to equity, making this option plausibly true in many contexts.
Option C: 'Since 1970, more than half of the new issues of stock have been sold to American households.' In reality, equity offerings have drawn participation from a mix of institutions and foreign investors as well as households, and the distribution has shifted over time. Claiming that households alone account for more than half of stock issues since 1970 is unlikely to be accurate, given the growth of institutional investors and changes in markets.
Option D: 'Financial intermediaries such as banks are the least important source of external funds for businesses.' On the contrary, financial intermediaries—banks, credit unions, and other intermediaries—play a central role in channeling funds to businesses through loans, lines of credit, and other facilities. It would be incorrect to label them the least important source; they are typically among the primary conduits for external funds.
In summary, option A risks overgeneralization about relative shares, option C misstates the distribution of stock buyers, and option D incorrectly minimizes the role of banks and intermediaries. Option B aligns with the common understanding that debt financing via bonds has historically been the more important external funding source for nonfinancial U.S. firms, due to factors like cost, leverage, and market structure.

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