Skin in the Game: Incentives in Crowdfunding

Hildebrand, Thomas; Puri, Manju; Rocholl, Jörg

doi:10.2139/ssrn.1615483

Cited by 18 publications

(9 citation statements)

References 4 publications

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“…3 In this study, we derive characteristics of individual crowdfunding practices by means of hand-collected data of 44 initiatives and then we examine drivers of fundraising success. We deliberately excluded initiatives launched using crowdfunding platforms since they have received greater attention in the literature (see, e.g., Agrawal, Catalini, and Goldfarb 2011;Hildebrand, Puri, and Rocholl 2011). In our context, individual crowdfunding practices relate to practices in which entrepreneurs do not make use of a 'structured' crowdfunding platform -such as Kickstarter, RocketHub, IndieGoGo, MyMajorCompany, and Prosperto fund their venture.…”

Section: Introductionmentioning

confidence: 99%

Individual Crowdfunding Practices

2012

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Section: Introductionmentioning

confidence: 99%

Individual Crowdfunding Practices

2012

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“…These authors have found that initial bids serve as a signal to investors, creating more bids over time (Herrero‐Lopez ; Herzenstein, Dholakia, and Andrews ; Lee and Lee ; Zhang and Liu ). Others have found that sometimes leader bids are actually a negative signal, specifically when there are origination fees (Hildebrand, Puri, and Rocholl ).…”

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confidence: 99%

Small Business Borrowing and Peer‐to‐peer Lending: Evidence From Lending Club

Nowak

Ross

Yencha

2017

Contemporary Economic Policy

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We investigate the ability of small business borrowers to signal to investors their credit worthiness through the use of text descriptions in the peer‐to‐peer lending market. Specifically, we examine the relationship between the loan description written by a borrower and whether or not the project is funded by investors. Using textual analysis, we find that small business loan descriptions can be used to predict the likelihood that the loan will be funded. We also find that an index, created from a textual analysis of the words used in the loan description, can forecast the performance of the loan, specifically whether or not the loan defaults. This index has the strongest impact when we focus on borrowers with low FICO scores, suggesting that for these individuals the description can signal information that standard measures used for lending purposes cannot. Overall, it appears as though investors are making investment decisions based on proper and relevant signals given by the borrowers through the loan description. (JEL D47, D53, D82, D83, G14, G21)

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“…Note that most existing theoretical literature on crowdfunding often considers reward-based and equity-based crowdfunding separately from debt-based crowdfunding. One of the reasons for this seems to be that the founders' objectives are quite di¤erent in these scenarios (see, for example, Hildebrand, Puri, and Rocholl (2014)).…”

Section: The Model Extensions and Robustnessmentioning

confidence: 99%

Crowdfunding Under Market Feedback, Asymmetric Information And Overconfident Entrepreneur

Miglo

2020

Entrepreneurship Research Journal

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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 the entrepreneur learns from the sale of shares before making production decisions. The model also predicts that an equilibrium can exist where some firms use equity-based crowdfunding, which contrasts the results of traditional theories (which have rational managers), for example, the pecking-order theory. It also contrasts traditional behavioral finance literature (e. g. Fairchild, R. 2005. “The Effect of Managerial Overconfidence, Asymmetric Information, and Moral Hazard on Capital Structure Decisions.” ICFAI Journal of Behavioral Finance 2 (4).) where equity is not issued in equilibrium.

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Skin in the Game: Incentives in Crowdfunding

Cited by 18 publications

References 4 publications

Individual Crowdfunding Practices

Individual Crowdfunding Practices

Small Business Borrowing and Peer‐to‐peer Lending: Evidence From Lending Club

Crowdfunding Under Market Feedback, Asymmetric Information And Overconfident Entrepreneur

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