Invest or regret? An empirical investigation into funding dynamics during the final days of equity crowdfunding campaigns

Thang Nguyen, Joe Cox, Judy Rich

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    Abstract

    In this study, we use the options theory of investment to investigate the funding behaviour of investors in equity crowdfunding. Options theory argues that when faced with uncertainty, investors have the ‘option’ to delay their irreversible investments, although incur a cost in doing so. Demonstrating that investments in equity crowdfunding are characterised by low levels of irreversibility (i.e., they are semi-reversible), moderate costs of delay and high levels of uncertainty, we follow the predictions of options theory in hypothesising that investors may rationally delay their investments in order to gain new information about the quality of businesses in which they invest. We find empirical evidence in support of these arguments when investigating the dynamics of investment activity in campaigns hosted on the UK equity crowdfunding platform Crowdcube.
    Original languageEnglish
    Pages (from-to)784-803
    JournalJournal of Corporate Finance
    Volume58
    Early online date24 Jul 2019
    DOIs
    Publication statusPublished - 1 Oct 2019

    Keywords

    • Equity crowdfunding
    • Options theory
    • Uncertainty
    • Cost of delay

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