Financing Efficiency of Securities-Based Crowdfunding

David C Brown, Shaun William Davies and Itay Goldstein

The Review of Financial Studies, 2020, vol. 33, issue 9, 3975-4023

Abstract: We analyze early-venture fundraising from dispersed, endogenously informed investors. An entrepreneur chooses a payoff-maximizing offering, and investors communicate their information by either contributing capital or abstaining. The entrepreneur uses the information conveyed by fundraising amounts to decide whether or not to undertake a risky venture. His decision threshold hedges investors against bad projects, creating a “loser’s blessing” that encourages contributing without information. Making the offering less attractive to investors mitigates the loser’s blessing but can give rise to a winner’s curse. Both tensions reduce financing efficiency.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

JEL-codes: G10 G18 G24 G28 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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