Crowdfunding Under Market Feedback, Asymmetric Information And Overconfident Entrepreneur

Anton Miglo

MPRA Paper from University Library of Munich, Germany

Abstract: This article is the first one that considers a model of the choice between the different types of crowdfunding, which contains elements of the asymmetric information approach and behavioral finance (overconfident entrepreneurs). The model provides several implications, most of which have not yet been tested. Our model predicts that equity-based crowdfunding is more profitable than reward-based crowdfunding when an entrepreneur is overconfident. This is because either the entrepreneur learns from the sale of shares before making production decisions or because the crowd anticipates the entrepreneur's behavior when valuing the shares offered for sale. The model also predicts that an equilibrium can exist where high-quality firms use equity-based crowdfunding in equilibrium which contrasts the spirit of traditional results (for example pecking-order theory) where equity represents an inferior security. The latter has rational managers. It also contrasts traditional behavioral finance literature (for example, Fairchild (2005)) where equity is not issued in equilibrium.

Keywords: crowdfunding; asymmetric information; overconfidence; equity-based crowdfunding; reward-based crowdfunding; entrepreneurship and learning (search for similar items in EconPapers)
JEL-codes: D82 G32 L11 L26 M13 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-cfn, nep-ent and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Crowdfunding Under Market Feedback, Asymmetric Information And Overconfident Entrepreneur (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:89015

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