Crowdfunding and Bank Financing: Substitutes or Complements?

Anton Miglo

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we analyze a firm choice between crowdfunding and bank financing. For many entrepreneurs it is an important issue. We analyze a model where the choice of financing is affected by moral hazard problem regarding the choice of production scale that favors bank financing, and by the uncertainty about market demand that favors crowdfunding. We argue that long crowdfunding campaigns or campaigns with large targets usually are less efficient in mitigating moral hazard problem than small/short campaigns. We also argue that high-quality firms and firms with potentially large markets will tend to select bank financing while projects with largest amount of investment should select mixed financing where the firm uses a short crowdfunding campaign and a bank loan. Most of our model empirical predictions have not been directly tested sofar while they are indirectly consistent with available evidence.

Keywords: crowdfunding; debt financing; moral hazard; reward-based crowdfunding; demand uncertainty (search for similar items in EconPapers)
JEL-codes: D82 G32 L26 M13 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-cfn and nep-ppm
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Related works:
Journal Article: Crowdfunding and bank financing: substitutes or complements? (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:115761

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