The concept of adverse selection helps to explain
A) which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets.
B) why indirect finance is more important than direct finance as a source of business finance.
C) why direct finance is more important than indirect finance as a source of business finance.
D) only A and B of the above.
E) only A and C of the above.

Question

Quizplus · Accepted Answer

Adverse selection helps explain why certain firms are more likely to seek financing from banks and other intermediaries (due to information asymmetries that make it harder for them to secure funds directly from the market) and why indirect finance (through financial intermediaries) is often more important than direct finance (since intermediaries can better assess and mitigate the risks associated with information asymmetries).

The Concept of Adverse Selection Helps to Explain