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- Title
Financial Matching, Asymmetric Information and Entrepreneurial Risk Taking.
- Authors
Vesala, Timo
- Abstract
We study financial matching in credit markets when entrepreneurs have private information about their success potential. Entrepreneurs can search for financing for either a “risky” or a “safe” investment and only the risky project is sensitive to entrepreneurs' intrinsic “types”. There is excess risk taking in the sense that entrepreneurs with inefficiently low success probabilities choose the risky investment. However, steady states featuring greater market liquidity are associated with higher efficiency. As market liquidity also reflects the intensity of competition among financiers, earlier results which indicate a negative relationship between competition and allocative efficiency do not hold in our setup.
- Subjects
ENTREPRENEURSHIP; BUSINESSPEOPLE; BUSINESSMEN; INFORMATION asymmetry; INVESTMENTS; LIQUIDITY (Economics); STATISTICAL correlation; PROBABILITY theory; INVESTORS
- Publication
Scandinavian Journal of Economics, 2007, Vol 109, Issue 3, p469
- ISSN
0347-0520
- Publication type
Article
- DOI
10.1111/j.1467-9442.2007.00505.x