Secondary Market Listings in Equity Crowdfunding: The Missing Link?

65 Pages Posted: 12 Jan 2021

See all articles by Anna Lukkarinen

Anna Lukkarinen

Aalto University, Department of Industrial Engineering and Management

Armin Schwienbacher

SKEMA Business School

Date Written: September 9, 2020

Abstract

While equity crowdfunding has grown in prevalence, investors have had very few opportunities to exit their investments. To address this, several equity crowdfunding platforms have started considering developing secondary markets for buying and selling shares. Using detailed data from the world’s first secondary market for equity crowdfunding, we investigate whether committing to list on the secondary market after the fundraising campaign leads to greater investor participation and thus helps entrepreneurs to raise more money during the campaign. We find that in the early days of the secondary market, making a pre-commitment to list attracted more investors and larger investment sums. However, this positive effect disappeared after the first 18 months of secondary market operation, most likely because investors realized the lack of liquidity on the secondary market and thus the fact that secondary markets are currently unlikely to constitute a viable exit route. Our findings offer valuable insights to platforms aiming at launching secondary markets and regulators responsible for validating such initiatives. In particular, equity crowdfunding would benefit greatly from liquid secondary markets, which however are difficult to achieve due to high information asymmetries, price formation difficulties, reputational concerns, and competition effects from the primary market.

Keywords: equity crowdfunding; secondary markets; exit; illiquidity risk

JEL Classification: G10; G20; L26

Suggested Citation

Lukkarinen, Anna and Schwienbacher, Armin, Secondary Market Listings in Equity Crowdfunding: The Missing Link? (September 9, 2020). Available at SSRN: https://ssrn.com/abstract=3725498 or http://dx.doi.org/10.2139/ssrn.3725498

Anna Lukkarinen (Contact Author)

Aalto University, Department of Industrial Engineering and Management ( email )

PO Box 15500
00076 Aalto
Espoo
Finland

HOME PAGE: http://https://people.aalto.fi/anna.lukkarinen

Armin Schwienbacher

SKEMA Business School ( email )

Avenue Willy Brandt
Euralille, 59777
France

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

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