Crowdfunding Under Market Feedback, Asymmetric Information And Overconfident Entrepreneur

Miglo, Anton (2020) Crowdfunding Under Market Feedback, Asymmetric Information And Overconfident Entrepreneur. Entrepreneurship Research Journal. ISSN 2157-5665

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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.

Item Type:	Article
Identification Number:	https://doi.org/10.1515/erj-2019-0018
Date:	28 February 2020
Uncontrolled Keywords:	crowdfunding, asymmetric information, overconfidence, equity-based crowdfunding, reward-based crowdfunding, entrepreneurship and learning
Subjects:	L100 Economics N100 Business studies N200 Management studies N300 Finance
Divisions:	Faculty of Business, Law and Social Sciences > Birmingham City Business School > Department of Accounting, Finance and Economics
Depositing User:	Anton Miglo
Date Deposited:	03 Mar 2020 11:45
Last Modified:	03 Mar 2020 11:45
URI:	http://www.open-access.bcu.ac.uk/id/eprint/8962

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