Is the Crowd Sensitive to Distance? How Investment Decisions Differ by Investor Type

Günther, Christina; Johan, Sofia; Schweizer, Denis

doi:10.2139/ssrn.2725463

Cited by 50 publications

(107 citation statements)

References 36 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…Therefore, in contrast to Å stebro et al (2018), who measure information asymmetries using different investor types (see above), we use a different approach to capture information asymmetries using the geographical distance as a proxy of potential information asymmetries. Geographically proximate investors are likely to have better access to information (e.g., Coval and Moskowitz 1999;Guenther et al 2018). If investors use large investments to extract information and attribute local investors to have superior information, this number should have an additional positive effect.…”

Section: Hypothesismentioning

confidence: 99%

See 1 more Smart Citation

Observational learning and willingness to pay in equity crowdfunding

Walther

Bade

2020

Bus Res

View full text Add to dashboard Cite

This study examines interdependencies between investments of equity crowdfunders. Based on hand-collected data from a well-established equitycrowdfunding platform, we find strong indication that investors observe previous investments to determine their willingness to pay for equity shares. Furthermore, the investment behavior of predecessors may lead investors to deviate from average investment behavior. In particular, investors are willing to pay more than the average investment, when the focal campaign is hot or there have been many large investments in the campaign. Remarkably, a high number of all previous investments over the entire period of the campaign as well as co-financing by presumably sophisticated investors negatively influence willingness to pay. This suggests that crowd investors are subject to partial crowding-out. These findings are different on the platform level, which suggests that investors' behavior is rather information than sentiment-driven.

show abstract

Section: Hypothesismentioning

confidence: 99%

“…We start with variables that have been subject of other empirical studies on crowdfunding. Previous research has shown that geographically proximate investors are more likely to invest into a venture (Agrawal et al 2015;Lin and Viswanathan 2016;Guenther et al 2018). This phenomenon is commonly known as home bias or local bias.…”

Section: Control Variablesmentioning

confidence: 99%

Observational learning and willingness to pay in equity crowdfunding

Walther

Bade

2020

Bus Res

View full text Add to dashboard Cite

show abstract

“…Seventh, follow-up funding and firm failure might also depend on (a) the geographic area (i.e., metropolitan, where customer density and the likelihood of VC firms are higher) and (b) investor type (institutional vs. private; Cumming & Dai, 2010;Guenther, Johan, & Schweizer, 2016). For example, VCs tend to be clustered in London and Munich.…”

Section: Control Variablesmentioning

confidence: 99%

Equity crowdfunding in Germany and the United Kingdom: Follow‐up funding and firm failure

Hornuf

Schmitt

Stenzhorn

2018

Corporate Governance

100

View full text Add to dashboard Cite

Manuscript type Empirical Research question/issue Today, startups frequently obtain financing via the Internet through many small contributions of nonsophisticated investors. Yet, little is known whether these startups can ultimately build enduring businesses. This study investigates the determinants of follow‐up funding and firm failure after an equity crowdfunding campaign has taken place. Research findings/insights We use hand‐collected data from 13 different equity crowdfunding portals and 413 firms that ran at least one successful equity crowdfunding campaign in Germany or the United Kingdom between 2011 and 2016. Our findings show that German firms that received equity crowdfunding stood a higher chance of obtaining follow‐up funding through business angels or venture capitalists but also had a higher likelihood of failure. The number of senior managers and the number of initial venture capital investors both had a positive impact on obtaining postcampaign financing, whereas the average age of the senior management team had a negative impact. The number of initial venture capital investors and the valuation of the firm were significant predictors increasing the hazard of firm failure, whereas the number of senior managers and the amount raised during previous equity crowdfunding campaigns had a negative impact. Theoretical/academic implications This study provides some first empirical evidence regarding the firm and campaign characteristics that determine follow‐up funding and firm failure after an equity crowdfunding campaign has taken place. Given the absence of research on this topic so far, this study inevitably remains original and exploratory to some extent. The empirical findings suggest various avenues of research for human capital theory, organizational ecology, and the comparative corporate governance literature. Practitioner/policy implications Identifying influencing factors of follow‐up funding and firm survival is important to make this new and potentially welfare enhancing form of entrepreneurial finance more predictable by decreasing the risk of individual investments. Furthermore, this study offers insights to policy makers, which are currently expected to implement appropriate regulations for this new market segment. In addition, it provides important insights for portal managers as well as firms raising capital via equity crowdfunding, which may learn about their chances to build an enduring business. https://youtu.be/w_4lIfnOaQY

show abstract

“…Yet even though crowdfunding platforms eliminate the friction of distance, connecting entrepreneurs and investors regardless of location, home bias -in which funders of projects are disproportionately concentrated in near proximity to the location of projects -is a persistent feature of crowdfunding. This is evident in both lending and equity platforms (Mingfeng and Viswanathan, 2016;Günther et al, 2017). Research by Agrawal et al (2011Agrawal et al ( , 2015 finds that local funders are more likely to contribute larger amounts, and earlier.…”

Section: Crowdfunding: a Critiquementioning

confidence: 99%