Herding in Equity Crowdfunding

77 Pages Posted: 8 Dec 2017 Last revised: 9 Jan 2023

See all articles by Thomas B. Astebro

Thomas B. Astebro

HEC Paris - Economics and Decision Sciences

Manuel Fernández Sierra

Universidad de Los Andes; IZA

Stefano Lovo

HEC Paris - Finance Department

Nir Vulkan

University of Oxford - Said Business School

Date Written: June 18, 2019

Abstract

We build a model of equity crowdfunding that incorporates the two major funding models: All-or-Nothing (AoN) and Keep-It-All (KIA). Both informed and uninformed investors arrive sequentially and rationally choose whether and how much to invest. The KIA solution turns out to be a reduced version of AoN without signaling. We test predictions using data from a leading European equity crowdfunding platform and find support. Results are consistent with rational information aggregation. However, negative information cascades may still appear. The AoN crowdfunding mechanism might therefore fail to finance a non-negligible percentage of positive NPV projects.

Keywords: Equity crowdfunding, Alternative finance, Start-ups, Entrepreneurship, Entrepreneurial finance, Herding, Dynamic Models

JEL Classification: D81, D83, G11, G14

Suggested Citation

Astebro, Thomas B. and Fernández Sierra, Manuel and Lovo, Stefano and Vulkan, Nir, Herding in Equity Crowdfunding (June 18, 2019). Paris December 2018 Finance Meeting EUROFIDAI - AFFI, RAND Journal of Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3084140 or http://dx.doi.org/10.2139/ssrn.3084140

Thomas B. Astebro (Contact Author)

HEC Paris - Economics and Decision Sciences ( email )

Jouy-en-Josas Cedex, 78351
France

HOME PAGE: http://www.hec.edu/Faculty-Research/Faculty-Directory/ASTEBRO-Thomas

Manuel Fernández Sierra

Universidad de Los Andes ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia
+57 (1) 339 4949 Ext. 5025 (Phone)

HOME PAGE: http://https://sites.google.com/view/manuelfernandezsierra

IZA ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Stefano Lovo

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Nir Vulkan

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 01865 288929, or 288338 (Phone)
+44 01865 288805 (Fax)

HOME PAGE: https://vulkan.worc.ox.ac.uk/

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