Quality Revealing Versus Overstating in Equity Crowdfunding

58 Pages Posted: 8 May 2020 Last revised: 17 Sep 2020

See all articles by Sofia Johan

Sofia Johan

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

Yelin Zhang

Gonzaga University - School of Business Administration

Date Written: September 1, 2020


This paper studies the impact of qualitative business information on mitigating information
asymmetry between equity crowdfunding entrepreneurs and investors. Qualitative business
information covers the entrepreneurs’ introduction on business model, competitive strategy,
product market, drivers and barriers for product/service adoption and business milestones.
Empirical data reveal that, overall, more detailed disclosure of qualitative business information
leads to better fundraising outcome. However, while entrepreneurs’ excessive use of promotional
language, or self-praise on business quality without factual support, is not rewarded by
sophisticated investors, ordinary investors are less resistant to promotional language. We also find
that Title III of the JOBS Act results in a reduction of the percentage of completed fundraisings
but exacerbates the effect of project description on the percentage of completed fundraisings.

Keywords: Equity Crowdfunding, Information Asymmetry, Qualitative Information

JEL Classification: G23, G24, L26

Suggested Citation

Johan, Sofia A. and Zhang, Yelin, Quality Revealing Versus Overstating in Equity Crowdfunding (September 1, 2020). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3575253 or http://dx.doi.org/10.2139/ssrn.3575253

Sofia A. Johan

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/sofiajohan

University of Aberdeen ( email )

Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE

Yelin Zhang (Contact Author)

Gonzaga University - School of Business Administration ( email )

Spokane, WA
United States

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