Investors’ Choices Between Cash and Voting Rights: Evidence from Dual-Class Equity Crowdfunding

66 Pages Posted: 5 Apr 2019 Last revised: 7 Apr 2019

See all articles by Douglas J. Cumming

Douglas J. Cumming

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

Michele Meoli

University of Bergamo

Silvio Vismara

University of Bergamo

Date Written: November 15, 2018

Abstract

This paper examines for the first time dual-class equity crowdfunding as a digital ownership model. Unique to this context, companies can set an investment threshold under which no voting rights are granted, making the issuance of Class A vs. Class B shares, depending on individual investors. Using a sample of 491 offerings on the UK platform Crowdcube from 2011 to 2015, we find that a higher separation between ownership and control rights lowers the probability of success of the offering, the likelihood of attracting professional investors, as well as the long-run prospects. Different from small investors, professional investors care about the implementation of a threshold for the attribution of voting rights and often bid the Class A threshold exactly. Family businesses, although less attractive to small investors, are relatively safer investments, because of their lower chances of failure.

Keywords: Equity Crowdfunding, Crowdfunding, Corporate Governance, Entrepreneurial Finance, Voting Rights, Ownership and Control

JEL Classification: G24, G32, L26

Suggested Citation

Cumming, Douglas J. and Meoli, Michele and Vismara, Silvio, Investors’ Choices Between Cash and Voting Rights: Evidence from Dual-Class Equity Crowdfunding (November 15, 2018). Research Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3351940

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 )

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Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

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1000 Brussels
Belgium

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

Michele Meoli

University of Bergamo ( email )

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24044 Dalmine, Bergamo
Italy
+390352052026 (Phone)
+390352052077 (Fax)

Silvio Vismara (Contact Author)

University of Bergamo ( email )

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2
Bergamo, 24127
Italy
24127 (Fax)

HOME PAGE: http://https://scholar.google.it/citations?user=Sa8sBkoAAAAJ&hl=en

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