Governance and Success in U.S. Securities-Based Crowdfunding

Abstract

We examine the relevance of four governance mechanisms for securities-based crowdfunding campaign success through mitigating pronounced information asymmetries and agency problems. First, unlike IPOs for which the effect of Delaware incorporation has declined or disappeared over time, we propose Delaware incorporation matters a great deal for success in the new setting of securities-based crowdfunding. Second, we propose that the disclosure of two years of financial statement information has an immaterial effect on crowdfunding success due to limited forecasting ability. Third, we propose that the choice of security type is a critical determinant for securities-based crowdfunding success. Last, we propose that platforms as intermediaries between entrepreneurs and investors play an important role in mitigating and sometimes exacerbating information asymmetries and agency problems. The population of securities-based crowdfunding campaigns from market inception in May 2016 to December 2021 in the United States provides strong support for these propositions.

Keywords: Equity Crowdfunding, Governance, Delaware Incorporation, Fintech, COVID-19

JEL Classification: G21, G28, G51