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Crowdfunding and Bank Financing: Substitutes or Complements?

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  • Miglo, Anton
Abstract
In this paper we analyze a firm choice between crowdfunding and bank financing. For many entrepreneurs it is an important issue. We analyze a model where the choice of financing is affected by moral hazard problem regarding the choice of production scale that favors bank financing, and by the uncertainty about market demand that favors crowdfunding. We argue that long crowdfunding campaigns or campaigns with large targets usually are less efficient in mitigating moral hazard problem than small/short campaigns. We also argue that high-quality firms and firms with potentially large markets will tend to select bank financing while projects with largest amount of investment should select mixed financing where the firm uses a short crowdfunding campaign and a bank loan. Most of our model empirical predictions have not been directly tested sofar while they are indirectly consistent with available evidence.

Suggested Citation

  • Miglo, Anton, 2021. "Crowdfunding and Bank Financing: Substitutes or Complements?," MPRA Paper 115761, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:115761
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    Cited by:

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    2. Yoshiaki Nose & Chie Hosomi, 2023. "What makes equity crowdfunding successful in Japan? Testing the signaling and lack of financial literacy hypotheses," Journal of Entrepreneurship, Management and Innovation, Fundacja Upowszechniająca Wiedzę i Naukę "Cognitione", vol. 19(4), pages 146-183.

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    More about this item

    Keywords

    crowdfunding; debt financing; moral hazard; reward-based crowdfunding; demand uncertainty;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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