EconPapers    
Economics at your fingertips  
 

Third-party signals in equity crowdfunding: the role of prior financing

Simon Kleinert (), Christine Volkmann () and Marc Grünhagen ()
Additional contact information
Simon Kleinert: Bergische Universität Wuppertal
Christine Volkmann: Bergische Universität Wuppertal
Marc Grünhagen: Bergische Universität Wuppertal

Small Business Economics, 2020, vol. 54, issue 1, No 17, 365 pages

Abstract: Abstract Drawing on signaling theory, this study provides preliminary evidence that prior financing certifies firm quality to investors and reduces information asymmetries in equity crowdfunding. We examine 221 business plans and project descriptions of start-ups that ran equity crowdfunding campaigns on Crowdcube in 2017 and 2018. Almost half of the start-ups had previously raised funds through business angels, venture capitalists, crowdfunding, or grants. Prior financing positively affects campaign success. Overall, the effect is larger for firms backed by multiple investor types and for firms that have run successful crowdfunding before. To isolate the quality signal from the additional benefits related to an affiliation with other investors, we analyze whether the effect of prior financing is moderated by the uncertainty around a project. In support of a signaling effect, preliminary evidence suggests that prior financing is most relevant for firms in the uncertain seed stage. Among the different investor types, we find that, in particular, an affiliation with venture capitalists signals quality. Such an affiliation is more important for firms with low levels of human and social capital. Our study adds to the understanding of how equity crowdfunding interacts with traditional forms of entrepreneurial finance.

Keywords: Entrepreneurial finance; Securities issuance; Equity crowdfunding; Signaling theory; Certification; L26; G40; G24; G23 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s11187-018-0125-2 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:sbusec:v:54:y:2020:i:1:d:10.1007_s11187-018-0125-2

Ordering information: This journal article can be ordered from
http://www.springer. ... 29/journal/11187/PS2

DOI: 10.1007/s11187-018-0125-2

Access Statistics for this article

Small Business Economics is currently edited by Zoltan J. Acs and David B. Audretsch

More articles in Small Business Economics from Springer
Bibliographic data for series maintained by Sonal Shukla ().

 
Page updated 2020-05-02
Handle: RePEc:kap:sbusec:v:54:y:2020:i:1:d:10.1007_s11187-018-0125-2