Smaller firms tend to rely on financial intermediaries instead of financial markets for external financing due to
A) transactions costs.
B) adverse selection.
C) moral hazard.
D) all of the above.

Question

Quizplus · Accepted Answer

Small firms tend to face higher transactions costs, adverse selection and moral hazard problems in financial markets, which can deter them from seeking external financing directly from investors. Financial intermediaries can help alleviate these problems by pooling and diversifying risks, conducting due diligence, and monitoring borrower behavior. Therefore, small firms are more likely to rely on financial intermediaries, such as banks or venture capitalists, to obtain financing.

Smaller Firms Tend to Rely on Financial Intermediaries Instead of Financial