Should Securities Regulation Promote Equity Crowdfunding?

29 Pages Posted: 22 Mar 2014 Last revised: 13 Oct 2020

See all articles by Lars Hornuf

Lars Hornuf

Technische Universität Dresden; CESifo (Center for Economic Studies and Ifo Institute)

Armin Schwienbacher

SKEMA Business School

Date Written: August 15, 2016


In this paper, we show that too strong investor protection may harm small firms and entrepreneurial initiatives, which contrasts with the traditional ‘law and finance’ view that stronger investor protection is better. This situation is particularly relevant in equity crowdfunding, which refers to a recent financial innovation originating on the Internet that targets small and innovative firms. In many jurisdictions, securities regulation offers exemptions to prospectus and registration requirements. We provide an into-depth discussion of recent regulatory reforms in different countries and discuss how they may impact equity crowdfunding. Building on a theoretical framework, we show that optimal regulation depends on the availability of alternative early-stage financing such as venture capital and angel finance. Finally, we offer exploratory evidence from Germany on the impact of securities regulation on small business finance.

Keywords: crowdinvesting, crowdfunding, securities regulation, investor protection

JEL Classification: G20, G18, G38, K22

Suggested Citation

Hornuf, Lars and Schwienbacher, Armin, Should Securities Regulation Promote Equity Crowdfunding? (August 15, 2016). Available at SSRN: or

Lars Hornuf

Technische Universität Dresden ( email )

Dresden, 01307


CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679

Armin Schwienbacher (Contact Author)

SKEMA Business School ( email )

Avenue Willy Brandt
Euralille, 59777


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