Information manipulation in equity crowdfunding markets

Michele Meoli and Silvio Vismara

Journal of Corporate Finance, 2021, vol. 67, issue C

Abstract: In digital finance markets, investors can withdraw their non-binding bids within a cooling-off period. As the bids are visible online, we argue that this option can be used to manipulate the information available to investors. Previous research indeed shows that early bids attract later investors and trigger information cascades, thereby enhancing the chances of success of the offerings. Using a dataset of 3564 investment lines, we observe frequent (10.2%) investment withdrawals before the end of the offerings. Platform members invested in 64% and later withdrew from 30% of the offerings listed in their portal, being 1.85 times more likely to withdraw than the average crowdfunding investor. We document that their investments take place predominantly in low-quality offerings and influence the campaign dynamics, increasing the number of subsequent bids.

Keywords: Equity crowdfunding; Entrepreneurial finance; Signaling theory; Observational learning; Information cascades; Social finance; Digital finance (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:67:y:2021:i:c:s0929119920303102

DOI: 10.1016/j.jcorpfin.2020.101866

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