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Crowdfunding Under Market Feedback, Asymmetric Information And Overconfident Entrepreneur

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  • Miglo, Anton

Abstract

This article is the first one that considers a model of the choice between the different types of crowdfunding, which contains elements of the asymmetric information approach and behavioral finance (overconfident entrepreneurs). The model provides several implications, most of which have not yet been tested. Our model predicts that equity-based crowdfunding is more profitable than reward-based crowdfunding when an entrepreneur is overconfident. This is because either the entrepreneur learns from the sale of shares before making production decisions or because the crowd anticipates the entrepreneur's behavior when valuing the shares offered for sale. The model also predicts that an equilibrium can exist where high-quality firms use equity-based crowdfunding in equilibrium which contrasts the spirit of traditional results (for example pecking-order theory) where equity represents an inferior security. The latter has rational managers. It also contrasts traditional behavioral finance literature (for example, Fairchild (2005)) where equity is not issued in equilibrium.

Suggested Citation

  • Miglo, Anton, 2018. "Crowdfunding Under Market Feedback, Asymmetric Information And Overconfident Entrepreneur," MPRA Paper 89015, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:89015
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    File URL: https://mpra.ub.uni-muenchen.de/89015/1/MPRA_paper_89015.pdf
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    References listed on IDEAS

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    4. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    5. Miglo, Anton, 2018. "Crowdfunding in a duopoly under asymmetric information," MPRA Paper 89016, University Library of Munich, Germany.
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    Cited by:

    1. Miglo, Anton, 2018. "Crowdfunding in a duopoly under asymmetric information," MPRA Paper 89016, University Library of Munich, Germany.

    More about this item

    Keywords

    crowdfunding; asymmetric information; overconfidence; equity-based crowdfunding; reward-based crowdfunding; entrepreneurship and learning;

    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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