Arbeitspapier

Opacity of young firms: Faith or fact?

Using patterns of disagreement between credit rating agencies, Donald P. Morgan (American Economic Review, 2002, Vol. 92, No. 4, pp. 874-888) shows that financial institutions are more opaque than other types of firms. In this paper we employ this novel measure to study the determinants of ‘opacity’ of small and medium sized enterprises (SMEs). We explore them, because a conventional wisdom in the contemporary corporate finance literature postulates that financial constraints are especially acute for younger firms due to their informational opacity. The patterns of disagreement in a large Finnish firm-level panel dataset allow us to render this article of faith to that of fact: The disagreements are inversely related to the age of firms, suggesting that younger SMEs are indeed more ‘opaque’ than older firms. We can also to an extent replicate Morgan’s finding: Two local credit information companies split more often over SMEs from the financial services sector than over other firms. The data also support the idea that the probability of disagreement is highest for those firms who have an intermediate rating, because they are, almost by definition, those whose quality is most difficult to evaluate. – opacity ; small business finance ; financial constraints

Language
Englisch

Bibliographic citation
Series: ETLA Discussion Papers ; No. 923

Classification
Wirtschaft
Information and Market Efficiency; Event Studies; Insider Trading
Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Subject
Unternehmensgründung
Klein- und Mittelunternehmen
Kreditwürdigkeit
Finnland

Event
Geistige Schöpfung
(who)
Hyytinen, Ari
Pajarinen, Mika
Event
Veröffentlichung
(who)
The Research Institute of the Finnish Economy (ETLA)
(where)
Helsinki
(when)
2004

Handle
Last update
10.03.2025, 11:41 AM CET

Data provider

This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Hyytinen, Ari
  • Pajarinen, Mika
  • The Research Institute of the Finnish Economy (ETLA)

Time of origin

  • 2004

Other Objects (12)