Disentangling Crowdfunding from Fraudfunding

62 Pages Posted: 26 Aug 2016 Last revised: 16 Apr 2017

Douglas J. Cumming

York University - Schulich School of Business

Lars Hornuf

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

Moein Karami

Concordia University

Denis Schweizer

Concordia University

Date Written: August 24, 2016

Abstract

Using Kickstarter and Indiegogo, the two largest crowdfunding platforms, we conduct an exhaustive search of all fraud cases from 2010 through 2015 that spans nine countries. In line with traditional economic theory, we posit that crowdfunding fraudsters are most concerned with getting caught and with the extent of the expected punishment. However, human nature suggests that maintaining a positive self-concept may be of equal concern. In line with this hypothesis, we present evidence that fraudsters are becoming more recognizable on portals and to the crowd because of several specific characteristics: They are less likely to carry out repeat funding campaigns, they are less likely to have a social media presence, and they are more likely to provide poorly worded and confusing 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 (August 24, 2016). Max Planck Institute for Innovation & Competition Research Paper No. 16-09. Available at SSRN: https://ssrn.com/abstract=2828919

Douglas J. Cumming

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

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

Lars Hornuf

University of Trier ( email )

Behringstra├če 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

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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