Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212026 
Year of Publication: 
2006
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 1/2006
Publisher: 
Bank of Finland, Helsinki
Abstract: 
This paper studies how comparing can be used to provide information in financial markets in the presence of a hidden characteristics problem.Although an investor cannot precisely estimate the future returns of an entrepreneur's projects, the investor can mitigate the asymmetric information problem by ranking different entrepreneurs and financing only the very best ones.Information asymmetry can be eliminated with certainty if the number of compared projects is sufficiently large.Because comparing favours centralised information gathering, it creates a novel rationale for the establishment of a financial intermediary.
Subjects: 
asymmetric information
banking
corporate finance
financial intermediation
ranking
venture capital
JEL: 
G21
G24
Persistent Identifier of the first edition: 
ISBN: 
952-462-256-4
Document Type: 
Working Paper

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