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On equity crowdfunding: investor rationality and success factors

On equity crowdfunding: investor rationality and success factors AbstractBased on observations from four European equity crowdfunding platforms, this study assesses crowdinvestors’ ability to interpret signals associated with firm and owner attributes, financial statements, and social networking activity when selecting investment opportunities. It was found that crowdinvestors attempt to reduce risk by choosing larger firms managed by experienced and educated managements who maintain a relatively large equity stake post-offering, while maximizing returns by picking projects with better growth opportunities (for example, young firms with higher expected margins and reasonably high sales growth forecasts). These results suggest that participants in the crowdfunding market are rational, interpreting signals derived from firm attributes and financial statements in appropriate ways to minimize risk and maximize returns. The firm’s and entrepreneur’s social networks also has a strong influence on investment decisions, so much so that the inclusion of this variable weakens the impacts of firm size, expected sales growth and margin on campaign success. This suggests the possibility that social media provide investors with an opportunity to validate otherwise less credible information. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Venture Capital Taylor & Francis

On equity crowdfunding: investor rationality and success factors

Venture Capital , Volume 21 (2-3): 30 – Jul 3, 2019

On equity crowdfunding: investor rationality and success factors

Venture Capital , Volume 21 (2-3): 30 – Jul 3, 2019

Abstract

AbstractBased on observations from four European equity crowdfunding platforms, this study assesses crowdinvestors’ ability to interpret signals associated with firm and owner attributes, financial statements, and social networking activity when selecting investment opportunities. It was found that crowdinvestors attempt to reduce risk by choosing larger firms managed by experienced and educated managements who maintain a relatively large equity stake post-offering, while maximizing returns by picking projects with better growth opportunities (for example, young firms with higher expected margins and reasonably high sales growth forecasts). These results suggest that participants in the crowdfunding market are rational, interpreting signals derived from firm attributes and financial statements in appropriate ways to minimize risk and maximize returns. The firm’s and entrepreneur’s social networks also has a strong influence on investment decisions, so much so that the inclusion of this variable weakens the impacts of firm size, expected sales growth and margin on campaign success. This suggests the possibility that social media provide investors with an opportunity to validate otherwise less credible information.

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References (63)

Publisher
Taylor & Francis
Copyright
© 2019 Informa UK Limited, trading as Taylor & Francis Group
ISSN
1464-5343
eISSN
1369-1066
DOI
10.1080/13691066.2018.1468542
Publisher site
See Article on Publisher Site

Abstract

AbstractBased on observations from four European equity crowdfunding platforms, this study assesses crowdinvestors’ ability to interpret signals associated with firm and owner attributes, financial statements, and social networking activity when selecting investment opportunities. It was found that crowdinvestors attempt to reduce risk by choosing larger firms managed by experienced and educated managements who maintain a relatively large equity stake post-offering, while maximizing returns by picking projects with better growth opportunities (for example, young firms with higher expected margins and reasonably high sales growth forecasts). These results suggest that participants in the crowdfunding market are rational, interpreting signals derived from firm attributes and financial statements in appropriate ways to minimize risk and maximize returns. The firm’s and entrepreneur’s social networks also has a strong influence on investment decisions, so much so that the inclusion of this variable weakens the impacts of firm size, expected sales growth and margin on campaign success. This suggests the possibility that social media provide investors with an opportunity to validate otherwise less credible information.

Journal

Venture CapitalTaylor & Francis

Published: Jul 3, 2019

Keywords: Crowdfunding; investor rationality; financial statement measures; social networks; campaign success; M13; M48; O16; O35

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