capital market gap
The failure to supply specific types of capital to a class of firms or projects that can use it most productively due to market imperfections. (Seidman, 2012) The theory of competitive markets argues that when competitive market conditions exist, capital is efficiently allocated to investments that offer the highest return to capital, adjusted for investment risk. Thus, a capital market gap exists when capital markets fail to allocate capital to firms and projects, or entire classes of firms or projects, that offer a rate of return equal to that offered by other investments with the same level of risk. In other words, when market imperfections exist, capital is not allocated to firms and projects that can use capital most productively. When systematic conditions in market structure or operations cause market imperfections, the resulting capital gap will be systematic, affecting an entire class of financial transactions, firms, or projects. Capital market imperfections, therefore, create supply gaps that generate a need for interventions to ensure capital availability for community economic development (Seidman, 2005, p. 8).