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Should Securities Regulation Promote Equity Crowdfunding?

29 Pages Posted: 22 Mar 2014 Last revised: 17 Dec 2016

Lars Hornuf

University of Trier; Max Planck Institute for Innovation and Competition; Institute for Labour Law and Industrial Relations in the European Union (IAAEU)

Armin Schwienbacher

SKEMA Business School

Date Written: August 15, 2016

Abstract

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: https://ssrn.com/abstract=2412124 or http://dx.doi.org/10.2139/ssrn.2412124

Lars Hornuf

University of Trier ( email )

Behringstraße 21
Trier, 54296
Germany
+49 651 201 4744 (Phone)
+49 651 201 4742 (Fax)

Max Planck Institute for Innovation and Competition

Marstallplatz 1
Munich, 80539
Germany

Institute for Labour Law and Industrial Relations in the European Union (IAAEU) ( email )

Behringstr. 21
Campus II, Building H, 7. Floor
Trier, DE 54296
Germany

Armin Schwienbacher (Contact Author)

SKEMA Business School ( email )

Lille
France

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