Governance and Success in U.S. Equity Crowdfunding

Center for Financial Studies Working Paper No. 668, 2021

64 Pages Posted:

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)

Robert Reardon

Florida Atlantic University

Date Written: October 26, 2021

Abstract

We propose three governance mechanisms pertinent to equity crowdfunding and 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 equity crowdfunding. Second, we propose that security design is a critical tool for equity crowdfunding success and even more important than the limited 2-year financial statement disclosure. Third, 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 equity crowdfunding campaigns from market inception in May 2016 to Q2, 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. Equity Crowdfunding (October 26, 2021). Center for Financial Studies Working Paper No. 668, 2021, Available at SSRN: https://ssrn.com/abstract=

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

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

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

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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