Demand Driven Securities Regulation: Evidence from Crowdfunding

Venture Capital: An International Journal of Entrepreneurial Finance 15, 361-379 (2013)

36 Pages Posted: 22 Jul 2013 Last revised: 24 Nov 2014

Douglas J. Cumming

York University - Schulich School of Business

Sofia Johan

York University - Schulich School of Business; Tilburg Law and Economics Center (TILEC)

Multiple version iconThere are 2 versions of this paper

Date Written: September 2013

Abstract

We study the law production race-to-the-bottom/race-to-the-top debate in a unique context of crowdfunding in which potential agency problems are extreme. Our empirical setting is based on survey data from Canada in 2013(Q1) when equity crowdfunding was not permitted but was openly contemplated by regulators. The data show some tension towards a race to the bottom insofar as start-ups prefer fewer restrictions on their ability to crowdfund, and portals prefer fewer disclosure requirements and fewer restrictions on free trading of crowdfunded shares. However, this evidence is tempered by the fact that investors demand more disclosure, limits on amounts entrepreneurs can raise, and lower thresholds for audited financial statements, among other things. Based on the ease with which the Internet facilitates cross-jurisdictional investment, we infer from the data that investor demands will give rise to a race to the top in the crowdfunding space.

Keywords: Crowdfunding, Securities Law, Race-to-the-Top, Race-to-the-Bottom

JEL Classification: G23, G24, G28, K22

Suggested Citation

Cumming, Douglas J. and Johan, Sofia, Demand Driven Securities Regulation: Evidence from Crowdfunding (September 2013). Venture Capital: An International Journal of Entrepreneurial Finance 15, 361-379 (2013). Available at SSRN: https://ssrn.com/abstract=2296453 or http://dx.doi.org/10.2139/ssrn.2296453

Douglas J. Cumming (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Sofia A. Johan

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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