The Role of Due Diligence in Crowdfunding Platforms

50 Pages Posted: 7 Oct 2019

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Sofia Johan

Florida Atlantic University - Finance; University of Aberdeen; Tilburg Law and Economics Center (TILEC)

Yelin Zhang

Gonzaga University - School of Business Administration

Multiple version iconThere are 2 versions of this paper

Date Written: August 26, 2019

Abstract

Crowdfunding platform due diligence comprises background checks, site visits, credit checks, cross-checks, account monitoring, and third party proof on funding projects. We evaluate the factors associated with platforms’ compliance expenses, and their due diligence application. We find that due diligence is related to legislation requirement, platform size, and type or complexity of crowdfunding campaigns. In addition, we find that platforms applying due diligence provide more services to project issuers and funders. Furthermore, due diligence is associated with higher percentage of successful campaigns, more fund contributors, and larger amount of capital raised on platforms. Our analyses are supported by platform-level data, covering the period 2014-2017.

Keywords: Crowdfunding, Entrepreneurial Finance, Intermediaries

JEL Classification: G23, G24, L26

Suggested Citation

Cumming, Douglas J. and Johan, Sofia A. and Zhang, Yelin, The Role of Due Diligence in Crowdfunding Platforms (August 26, 2019). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3460279

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Sofia A. Johan

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

University of Aberdeen ( email )

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Yelin Zhang (Contact Author)

Gonzaga University - School of Business Administration ( email )

Spokane, WA
United States

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