Hypothetical Bias in Equity Crowdfunding

39 Pages Posted: 12 Feb 2018 Last revised: 17 Apr 2018

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

Fabrice Hervé

Université de Bourgogne - CREGO - UBFC

Elodie Manthé

Université de Bourgogne

Armin Schwienbacher

SKEMA Business School

Date Written: January 31, 2018


Young, entrepreneurial firms are particularly dependent on external investors to sustain their development. Are non-binding equity investment commitments informative? Our large sample evidence in the context of equity crowdfunding shows that only 18% of non-binding commitments made by investors in entrepreneurial firms are actually invested. The evidence is consistent with hypothetical bias. Hypothetical bias is significantly less pronounced among women, and among investors with greater social capital, proxied by education and wealth. While investment intentions are only partially reliable at the individual level, the aggregate amount of collected investment intentions is a strong predictor of campaign success. We investigate alternative reasons for retractions, such as lying and informational motives, both of which we find implausible alternatives to hypothetical bias.

Keywords: hypothetical bias, voting, social capital, equity crowdfunding

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

Suggested Citation

Cumming, Douglas J. and Hervé, Fabrice and Manthé, Elodie and Schwienbacher, Armin, Hypothetical Bias in Equity Crowdfunding (January 31, 2018). 2nd Emerging Trends in Entrepreneurial Finance Conference, Available at SSRN: https://ssrn.com/abstract=3114526 or http://dx.doi.org/10.2139/ssrn.3114526

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

HOME PAGE: http://https://ecgi.global/users/douglas-cumming

Fabrice Hervé

Université de Bourgogne - CREGO - UBFC ( email )

2 Bd Gabriel
21 000 DIJON

Elodie Manthé

Université de Bourgogne ( email )


Armin Schwienbacher (Contact Author)

SKEMA Business School ( email )

Avenue Willy Brandt
Euralille, 59777

HOME PAGE: http://sites.google.com/view/armin-schwienbacher

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