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Invest or regret? An empirical investigation into funding dynamics during the final days of equity crowdfunding campaigns

Thang Nguyen, Joe Cox and Judith Rich

Journal of Corporate Finance, 2019, vol. 58, issue C, 784-803

Abstract: In this study, we use the options theory of investment to investigate the funding behaviour of investors in equity crowdfunding. Options theory argues that when faced with uncertainty, investors have the ‘option’ to delay their irreversible investments, although incur a cost in doing so. Demonstrating that investments in equity crowdfunding are characterised by low levels of irreversibility (i.e., they are semi-reversible), moderate costs of delay and high levels of uncertainty, we follow the predictions of options theory in hypothesising that investors may rationally delay their investments in order to gain new information about the quality of businesses in which they invest. We find empirical evidence in support of these arguments when investigating the dynamics of investment activity in campaigns hosted on the UK equity crowdfunding platform Crowdcube.

Keywords: Equity crowdfunding; Options theory; Uncertainty; Cost of delay (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.jcorpfin.2019.07.011

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