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Journal Article

Should Securities Regulation Promote Equity Crowdfunding?


Hornuf,  Lars
MPI for Innovation and Competition, Max Planck Society;

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Hornuf, L., & Schwienbacher, A. (2017). Should Securities Regulation Promote Equity Crowdfunding? Small Business Economics, 49(3), 579-593. doi:10.1007/s11187-017-9839-9.

Cite as: http://hdl.handle.net/11858/00-001M-0000-002A-E983-2
In this paper, we show that too strong investor protection may harm small firms and entrepreneurial initiatives, which contrasts with the traditional ‘law & finance’ view that stronger investor protection is better. This situation is particularly relevant in crowdinvesting, which refers to a recent financial innovation originating on the Internet and targets small, innovative firms. In many jurisdictions, securities regulation offers exemptions to prospectus and registration requirements. We provide an into-depth discussion of recent regulatory reforms in different countries and discuss how they may impact crowdinvesting. Building on a theoretical framework, we show that optimal regulation depends on the availability of alternative early-stage financing such as venture capital and angel finance. Finally, we offer exploratory portal-level evidence from Germany on the impact of securities regulation on small business finance.