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Protecting Investors in Equity Crowdfunding: An Empirical Analysis of the Small Investor Protection Act

Author

Listed:
  • Maximilian Goethner

    (Friedrich Schiller University Jena)

  • Lars Hornuf

    (University of Bremen, and Max Planck Institute for Innovation and Competition, Munich)

  • Tobias Regner

    (Friedrich Schiller University Jena)

Abstract

During the past decade, equity crowdfunding (ECF) has emerged as an alternative funding channel for startup firms. In Germany, the Small Investor Protection Act became binding in July 2015, with the legislative goal to protect investors engaging in this new asset class. Since then, investors pledging more than 1,000 EUR now must self-report their income and wealth. Investing more than 10,000 EUR in a single ECF issuer is only possible through a corporate entity. We examine how the Small Investor Protection Act has affected investor behavior at Companisto, Germany’s largest ECF portal for startup firms. The results show that after the new law became binding, sophisticated investors invest less on average while casual investors invest more. Moreover, the signaling capacity of large investments has disappeared.

Suggested Citation

  • Maximilian Goethner & Lars Hornuf & Tobias Regner, 2020. "Protecting Investors in Equity Crowdfunding: An Empirical Analysis of the Small Investor Protection Act," Jena Economic Research Papers 2020-009, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2020-009
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    References listed on IDEAS

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    2. Lars Hornuf & Eliza Stenzhorn & Tim Vintis, 2020. "Are Sustainability-Oriented Investors Different? Evidence from Equity Crowdfunding," CESifo Working Paper Series 8339, CESifo.

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    More about this item

    Keywords

    Equity crowdfunding; Crowdinvesting; Investor protection;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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