Disentangling Crowdfunding from Fraudfunding

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

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: 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 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, 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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