How do Financial Intermediaries Create Value in Security Issues?*

Adriani, Fabrizio; Deidda, Luca; Sonderegger, Silvia

doi:10.1093/rof/rft027

Cited by 2 publications

(1 citation statement)

References 54 publications

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“…Revenue is mostly generated from success fees for offerings that exceed their minimum requested amount. This can induce platforms to act on a short-term focus by maximizing the number of projects and outsourcing the costly due diligence process to the crowd (Adriani et al, 2014), despite reputational risks (Blaseg et al, 2019). An effective selection by the crowd requires individuals who make an informed investment decision after proper due diligence, which is unreasonable to expect for two reasons.…”

Section: Hypothesesmentioning

confidence: 99%

Equity Crowdfunding: High-Quality or Low-Quality Entrepreneurs?

Blaseg

Cumming

Koetter

2020

Entrepreneurship Theory and Practice

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Equity crowdfunding (ECF) has potential benefits that might be attractive to high-quality entrepreneurs, including fast access to a large pool of investors and obtaining feedback from the market. However, there are potential costs associated with ECF due to early public disclosure of entrepreneurial activities, communication costs with large pools of investors, and equity dilution that could discourage future equity investors; these costs suggest that ECF attracts low-quality entrepreneurs. In this paper, we hypothesize that entrepreneurs tied to more risky banks are more likely to be low-quality entrepreneurs and thus are more likely to use ECF. A large sample of ECF campaigns in Germany shows strong evidence that connections to distressed banks push entrepreneurs to use ECF. We find some evidence, albeit less robust, that entrepreneurs who can access other forms of equity are less likely to use ECF. Finally, the data indicate that entrepreneurs who access ECF are more likely to fail.

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Section: Hypothesesmentioning

confidence: 99%