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Financing Efficiency of Securities-Based Crowdfunding

Author

Listed:
  • David C Brown
  • Shaun William Davies
  • Itay Goldstein

Abstract

We analyze early-venture fundraising from dispersed, endogenously informed investors. An entrepreneur chooses a payoff-maximizing offering, and investors communicate their information by either contributing capital or abstaining. The entrepreneur uses the information conveyed by fundraising amounts to decide whether or not to undertake a risky venture. His decision threshold hedges investors against bad projects, creating a “loser’s blessing” that encourages contributing without information. Making the offering less attractive to investors mitigates the loser’s blessing but can give rise to a winner’s curse. Both tensions reduce financing efficiency.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • David C Brown & Shaun William Davies & Itay Goldstein, 2020. "Financing Efficiency of Securities-Based Crowdfunding," The Review of Financial Studies, Society for Financial Studies, vol. 33(9), pages 3975-4023.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:9:p:3975-4023.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaa025
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    Citations

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    Cited by:

    1. Matthew Ellman & Michele Fabi, 2022. "A Theory of Crowdfunding Dynamics," Working Papers 1349, Barcelona School of Economics.
    2. Anton Miglo, 2022. "Theories of Crowdfunding and Token Issues: A Review," JRFM, MDPI, vol. 15(5), pages 1-28, May.
    3. David Cimon, 2023. "Crowdfunding and Risk," Staff Working Papers 23-28, Bank of Canada.
    4. Caio Machado & Ana Elisa Pereira, 2023. "Optimal Capital Structure with Stock Market Feedback," Review of Finance, European Finance Association, vol. 27(4), pages 1329-1371.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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