Should Securities Regulation Promote Crowdinvesting?

Lars Hornuf and Armin Schwienbacher

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: In this paper, we show that too strong investor protection may harm small firms and entrepreneurial initiatives, which contrasts with the traditional ‘law & finance’ view that stronger investor protection is better. This situation is particularly relevant in crowdinvesting, which refers to a recent financial innovation originating on the Internet and targets small, innovative firms. In many jurisdictions, securities regulation offers exemptions to prospectus and registration requirements. We provide an into-depth discussion of recent regulatory reforms in different countries and discuss how they may impact crowdinvesting. Building on a theoretical framework, we show that optimal regulation depends on the availability of alternative early-stage financing such as venture capital and angel finance. Finally, we offer exploratory portal-level evidence from Germany on the impact of securities regulation on small business finance.

Keywords: crowdinvesting; crowdfunding; securities regulation; investor protection (search for similar items in EconPapers)
JEL-codes: G18 G20 G38 K22 (search for similar items in EconPapers)
Date: 2014-03-20
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-law and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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