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Market imperfections and crowdfunding

Author

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  • Anton Miglo

    (Birmingham City University)

  • Victor Miglo

    (University of Toronto)

Abstract

This article is the first one that considers the choice between the different types of crowdfunding and traditional financing under different types of market imperfections. In contrast to most existing literature, we focus on financial aspects of crowdfunding rather than on price discrimination between customers using a new approach on the demand side. The model provides several implications, most of which have not yet been tested. For example, we find that when asymmetric information is important, high-quality projects prefer reward-based crowdfunding. A low-quality firm may find it unprofitable to mimick this strategy as it will be taking more risk to achieve a threshold. This result is contradictory to the spirit of the results in Belleflamme et al. (Journal of Business Venturing: Entrepreneurship, Entrepreneurial Finance, Innovation and Regional Development, 29(5), 585–609, 2014), which finds that asymmetric information favours equity-based crowdfunding. In contrast to Belleflamme et al. (Journal of Business Venturing: Entrepreneurship, Entrepreneurial Finance, Innovation and Regional Development, 29(5), 585–609, 2014), in our model, crowdfunding does not have any ad-hoc non-monetary benefits.

Suggested Citation

  • Anton Miglo & Victor Miglo, 2019. "Market imperfections and crowdfunding," Small Business Economics, Springer, vol. 53(1), pages 51-79, June.
    • Handle: RePEc:kap:sbusec:v:53:y:2019:i:1:d:10.1007_s11187-018-0037-1
    DOI: 10.1007/s11187-018-0037-1
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    Cited by:

    1. Anton Miglo, 2022. "Crowdfunding and bank financing: substitutes or complements?," Small Business Economics, Springer, vol. 59(3), pages 1115-1142, October.
    2. Marco Bade & Martin Walther, 2021. "Local preferences and the allocation of attention in equity-based crowdfunding," Review of Managerial Science, Springer, vol. 15(8), pages 2501-2533, November.
    3. Yasir Shahab & Yasir Riaz & Collins G. Ntim & Zhiwei Ye & Qingjing Zhang & Ran Feng, 2021. "Online feedback and crowdfunding finance in China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4634-4652, July.
    4. Miglo, Anton, 2022. "The role of location in the emergence of crowdfunding," MPRA Paper 115833, University Library of Munich, Germany.
    5. Anton Miglo, 2020. "Crowdfunding in a Competitive Environment," JRFM, MDPI, vol. 13(3), pages 1-38, February.
    6. Lenny Phulong Mamaro & Athenia Bongani Sibindi, 2024. "The Role of Entrepreneur’s Face Disclosure on Crowdfunding Success," Risks, MDPI, vol. 12(10), pages 1-19, October.
    7. Michael J. Ryoba & Shaojian Qu & Ying Ji & Deqiang Qu, 2020. "The Right Time for Crowd Communication during Campaigns for Sustainable Success of Crowdfunding: Evidence from Kickstarter Platform," Sustainability, MDPI, vol. 12(18), pages 1-22, September.
    8. Miglo, Anton, 2018. "Crowdfunding in a duopoly under asymmetric information," MPRA Paper 89016, University Library of Munich, Germany.
    9. Anton Miglo, 2021. "STO vs. ICO: A Theory of Token Issues under Moral Hazard and Demand Uncertainty," JRFM, MDPI, vol. 14(6), pages 1-35, May.
    10. Irene Comeig & Ernesto Mesa-Vázquez & Pau Sendra-Pons & Amparo Urbano, 2020. "Rational Herding in Reward-Based Crowdfunding: An MTurk Experiment," Sustainability, MDPI, vol. 12(23), pages 1-21, November.
    11. Anton Miglo, 2020. "Financing of Entrepreneurial Firms in Canada: Some Patterns," Administrative Sciences, MDPI, vol. 10(3), pages 1-27, August.
    12. Anton Miglo, 2022. "Theories of Crowdfunding and Token Issues: A Review," JRFM, MDPI, vol. 15(5), pages 1-28, May.
    13. Swati Oberoi & Smita Srivastava & Vishal K. Gupta & Rohit Joshi & Atul Mehta, 2022. "Crowd Reactions to Entrepreneurial Failure in Rewards-Based Crowdfunding: A Psychological Contract Theory Perspective," JRFM, MDPI, vol. 15(7), pages 1-26, July.
    14. Eric Tassel, 2023. "Crowdfunding investors, intermediaries and risky entrepreneurs," Small Business Economics, Springer, vol. 60(3), pages 1033-1050, March.
    15. Simon Kleinert & Christine Volkmann & Marc Grünhagen, 2020. "Third-party signals in equity crowdfunding: the role of prior financing," Small Business Economics, Springer, vol. 54(1), pages 341-365, January.
    16. Tuo Gladys & Yi Feng & Sarpong Solomon & Wang Wenxin, 2020. "The Second Round Resource Acquisition of Entrepreneurial Crowdfunded Ventures: The Relevance of Campaign and Project Implementation Performance Outcomes," Entrepreneurship Research Journal, De Gruyter, vol. 10(3), pages 1-21, July.
    17. Miglo Anton, 2021. "Crowdfunding Under Market Feedback, Asymmetric Information And Overconfident Entrepreneur," Entrepreneurship Research Journal, De Gruyter, vol. 11(4), pages 1-19, October.
    18. Lei Wang & Weijia You & Yingying Zhou & Fei Meng, 2022. "How Does Green Supply Chain Management Promote the Success of Crowdfunding Projects? Empirical Research Based on the QCA Method," Sustainability, MDPI, vol. 14(19), pages 1-21, September.
    19. Mari-Liis Kukk & Laivi Laidroo, 2020. "Institutional Drivers of Crowdfunding Volumes," JRFM, MDPI, vol. 13(12), pages 1-28, December.
    20. Hui He & Yan Bai & Xia Xiao, 2020. "How Past Failure Predicts Subsequent Entrepreneurial Intention: A Comparative Study of Mainland China and Taiwan," Sustainability, MDPI, vol. 12(6), pages 1-17, March.

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    More about this item

    Keywords

    Crowdfunding; Asymmetric information; Moral hazard; Equity-based crowdfunding; Reward-based crowdfunding;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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