Disillusion of the Democratization of Finance: Housing Prices and Crowdfunding

Forthcoming, Information Systems Research

44 Pages Posted: 3 Oct 2013 Last revised: 1 Jul 2018

See all articles by Keongtae Kim

Keongtae Kim

Decision Science and Managerial Economics, Chinese University of Hong Kong

Il-Horn Hann

University of Maryland - Decision and Information Technologies Department

Date Written: June 25, 2018

Abstract

Access to finance is arguably one of the most critical challenges in starting a new business. In this study, we examine how the difficulty of obtaining bank loans based on housing collateral, which is a form of traditional finance, relates to crowdfunding use by entrepreneurs. We obtained data on housing prices related closely to the cost of accessing such bank loans and matched these data to a 2009-2013 novel data set from a leading crowdfunding market. We adopted the first-difference estimator to address unobserved area-specific effects and used housing supply elasticity as an instrument for housing price changes. We found an increased decline in housing prices leads to a significant increase in the creation of crowdfunding projects. However, we did not find significant differential effects in housing price changes between successful and unsuccessful projects. Finally, the effect of housing prices on crowdfunding projects was more significant for areas with low socioeconomic status. Interestingly, the increase in crowdfunding projects in these low status areas was driven wholly by a significant increase in unsuccessful projects, whereas the effect of housing prices on successful projects was significant only in areas of high socioeconomic status. Numerous additional tests support the robustness of our main findings. Overall, our study suggests that crowdfunding can supplement traditional sources of funding, though socioeconomic status may still prevent disadvantaged people from receiving its full benefits.

Keywords: crowdfunding, housing prices, collateral, democratization of finance, digital divide

Suggested Citation

Kim, Keongtae and Hann, Il-Horn, Disillusion of the Democratization of Finance: Housing Prices and Crowdfunding (June 25, 2018). Forthcoming, Information Systems Research. Available at SSRN: https://ssrn.com/abstract=2334590 or http://dx.doi.org/10.2139/ssrn.2334590

Keongtae Kim (Contact Author)

Decision Science and Managerial Economics, Chinese University of Hong Kong ( email )

12 Chak Cheung street
Shatin
Hong Kong

Il-Horn Hann

University of Maryland - Decision and Information Technologies Department ( email )

Robert H. Smith School of Business
4313 Van Munching Hall
College Park, MD 20815
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
780
Abstract Views
3,540
rank
30,803
PlumX Metrics