Demand Driven Securities Regulation: Evidence from Crowdfunding
Venture Capital: An International Journal of Entrepreneurial Finance, 15, 361-379 (2013).
36 Pages Posted: 20 Sep 2013 Last revised: 24 Nov 2014
Date Written: September 1, 2013
We study the law production race-to-the-bottom/race-to-the-top debate in a unique context of crowd-funding in which potential agency problems are extreme. Our empirical setting is based on survey data from Canada in 2013(Q1) when equity crowd-funding 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 crowd-fund, and portals prefer fewer disclosure requirements and fewer restrictions on free trading of crowd-funded 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 crowd-funding space.
Keywords: crowd-funding, securities law, race-to-the-top, race-to-the-bottom
JEL Classification: G23, G24, G28, K22
Suggested Citation: Suggested Citation