Does Transparent Crowdfunding Foster Investment Efficiency?

65 Pages Posted: 17 Aug 2016 Last revised: 6 Dec 2018

See all articles by Oleg Chuprinin

Oleg Chuprinin

University of New South Wales (UNSW); Financial Research Network (FIRN)

Maggie Rong Hu

Chinese University of Hong Kong

Chang Mo Kang

UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Date Written: October 1, 2018

Abstract

We study how investment efficiency in a crowdfunding market depends on market characteristics, such as information distribution, transparency, and investor rationality. Our model explains why, even if investors are rational, crowdfunding often produces extreme funding outcomes unexplained by fundamentals. We show that transparent crowdfunding produces efficient allocations only when the information environment is sufficiently heterogeneous. Using micro-level data on investment contributions from a large U.S. platform, we find strong corroborating evidence of these effects. Overall, this paper identifies and tests principal mechanisms driving investment efficiency and funding uncertainty in crowdfunding markets, thereby informing the debate on crowdfunding design and regulation.

Keywords: Crowdfunding, Capital allocation efficiency, Information

JEL Classification: D83, G11

Suggested Citation

Chuprinin, Oleg and Hu, Maggie Rong and Kang, Chang Mo, Does Transparent Crowdfunding Foster Investment Efficiency? (October 1, 2018). Available at SSRN: https://ssrn.com/abstract=2824988 or http://dx.doi.org/10.2139/ssrn.2824988

Oleg Chuprinin (Contact Author)

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Maggie Rong Hu

Chinese University of Hong Kong ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Hong Kong, N.T.
Hong Kong

Chang Mo Kang

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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