Herding in equity crowdfunding

Journal article

Abstract:: We build a model of equity crowdfunding that incorporates the two major funding models: all-or-nothing (AoN) and keep-it-all (KIA). Both informed and uninformed investors arrive sequentially and rationally choose whether and how much to invest. The KIA solution turns out to be a reduced version of AoN without signalling. We test predictions using data from a leading European equity crowdfunding platform and find support. Results are consistent with rational information aggregation. However, negative information cascades may still appear. The AoN crowdfunding mechanism might therefore fail to finance a nonnegligible percentage of positive NPV projects.

Files:: Astebro_et_al_2024_Herding_in_equity.pdf

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Astebro_et_al_2024_Supporting_information.zip

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Language:: English
Keywords:: dynamic models

herding

alternative finance

equity crowdfunding

entrepreneurship

start-ups

entrepreneurial finance
Pubs id:: 1328713
Local pid:: pubs:1328713
Deposit date:: 2023-02-16

Copyright holder:: Åstebro et al.
Rights statement:: © 2024 The Author(s). The RAND Journal of Economics published by Wiley Periodicals LLC on behalf of The RAND Corporation. This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes.

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