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

66 Pages Posted: 12 Nov 2021 Last revised: 23 Oct 2022

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

Sofia Johan

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

Robert Reardon

Florida Atlantic University

Date Written: October 23, 2022

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

Suggested Citation

Cumming, Douglas J. and Johan, Sofia A. and Reardon, Robert S., Governance and Success in U.S. Securities-Based Crowdfunding (October 23, 2022). Available at SSRN: https://ssrn.com/abstract=3950966 or http://dx.doi.org/10.2139/ssrn.3950966

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/douglas-cumming

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
Netherlands

Robert S. Reardon (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

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

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