Market imperfections and crowdfunding

Abstract

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.

Crowdfunding in a Competitive Environment

“…In "campaign" area they point out the importance of the problem of choosing the right campaign type. Similarly, Miglo and Miglo (2019) mentioned that the literature on crowdfunding still lacks a full understanding of how entrepreneurs choose between different types of crowdfunding and how they decide whether to use crowdfunding or other types of financing. Among papers in this area note the following.…”

“…As the authors mentioned, further research is required. Miglo and Miglo (2019) consider the choice between the different types of crowdfunding and traditional financing under different types of market imperfections. Fairchild et al (2017) analyze an entrepreneur's choice between venture capital financing and crowdfunding in order to finance a new innovative start-up.…”

“…Belleflamme et al (2014) argue that the value of equity-based crowdfunding can be higher under asymmetric information than under symmetric information. Miglo and Miglo (2019) consider the choice between reward-based crowdfunding and equity-based crowdfunding and find that high-quality firms prefer reward-based crowdfunding and use it as a signal of quality. Chakraborty and Swinney (2019) consider a crowdfunding model where product quality is known to the entrepreneur but not to some contributors.…”

How Past Failure Predicts Subsequent Entrepreneurial Intention: A Comparative Study of Mainland China and Taiwan

“…Besides, study on social entrepreneurial enterprise is referred to and they find social entrepreneurs can learn from failure and enable support agencies to play a role of gatekeeper [26]. As internet startup is growing rapidly, crowdfunding online has become an important tool for entrepreneurial firms and small businesses [12,13]. Entrepreneurial individuals surveyed confirm that their failing on the crowdfunding platform reflects a largely positive experience on their later relaunched projects [14].…”

“…There are high proportions of serial entrepreneurs in Western countries such as U.S., Australia and Norway [10,11]. In addition, entrepreneurship by crowdfunding has represented a growing area of interest, and crowdfunding online proves to be the practice of funding a start-up company or project [12,13]. However, scholars also recommend that such crowdfunding platforms highlight the positive aspects of firm failure [14].…”