Investors’ Choices Between Cash and Voting Rights: Evidence from Dual-Class Equity Crowdfunding
66 Pages Posted: 5 Apr 2019 Last revised: 7 Apr 2019
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: Suggested Citation