This paper o¤ers a model of crowdfunding that represents a growing area of interest among practitioners and theorists. It is one of the …rst articles analyzing the choice between the di¤erent types of crowdfunding (reward-based vs. equity-based) and the choice between crowdfunding and traditional …nancing. The model is based on standard market imperfections such as asymmetric information and moral hazard as well as on some speci…c features of crowdfunding including the market feedback regarding new projects. The model provides several implications, most of which have not yet been tested. For example, we …nd that when asymmetric information is important, high-quality projects prefer reward-based crowdfunding. The choice of an all-or-nothing mechanism as opposed to a keep-it-all can serve as a signal of a …rm's quality ("signalling by riskbearing"). Crowdfunding is selected over a traditional bank loan if the demand for the product is either very small or very large.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
hi@scite.ai
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.