Disentangling Crowdfunding from Fraudfunding

86 Pages Posted: 26 Aug 2016 Last revised: 10 May 2020

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Lars Hornuf

University of Bremen - Faculty of Business Studies and Economics; Max Planck Institute for Innovation and Competition; CESifo (Center for Economic Studies and Ifo Institute)

Moein Karami

Concordia University

Denis Schweizer

Concordia University

Date Written: January 4, 2020

Abstract

Using Kickstarter, the largest global reward-based crowdfunding platform, we conduct an exhaustive search of all fraud cases from 2010 through 2015 for nine different countries. While fraud in this new market has been of concern to regulators, it is arguably of greater importance to the nascent industry itself. We find that Kickstarter campaigns posted around a late and visible suspension of a crowdfunding campaign tend to have a lower probability of success, fewer backers, and raise less funds. Moreover, documenting the characteristics of fraudsters is of paramount importance. We deploy the theoretical framework of the “Trust Triangle” to document campaign features that could be helpful to backers in detecting fraudsters in crowdfunding markets. We find fraudsters are less likely to have engaged in prior crowdfunding activities, are less likely to have a social media presence, and are more likely to provide easy-to-read campaign pitches with a greater number of enticements through pledge categories.

Keywords: Crowdfunding, Entrepreneurial Finance, Fraud, Internet

JEL Classification: G21, G24, G32, K22, L26

Suggested Citation

Cumming, Douglas J. and Hornuf, Lars and Karami, Moein and Schweizer, Denis, Disentangling Crowdfunding from Fraudfunding (January 4, 2020). Max Planck Institute for Innovation & Competition Research Paper No. 16-09. Available at SSRN: https://ssrn.com/abstract=2828919 or http://dx.doi.org/10.2139/ssrn.2828919

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Lars Hornuf

University of Bremen - Faculty of Business Studies and Economics ( email )

Bremen, D-28359
Germany
+49 89 20348619 (Phone)

HOME PAGE: http://www.hornuf.com

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, Bayern 80539
Germany

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

Poschinger Str. 5
Munich, DE-81679
Germany

Moein Karami

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

Denis Schweizer (Contact Author)

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada
+1 (514) 848-2424 ext. 2926 (Phone)
+1 (514) 848-4500 (Fax)

HOME PAGE: http://www.concordia.ca/jmsb/faculty/denis-schweizer.html

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