Lead investors' insider ownership and crowd investors' agency concerns in investor-led equity crowdfunding

Chen, X; Ma, L

Lead investors' insider ownership and crowd investors' agency concerns in investor-led equity crowdfunding

Chen, X Ma, L

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Publisher:: Elsevier
Publication Type:: Journal Article
Citation:: Pacific Basin Finance Journal, 2023, 78, pp. 101978
Issue Date:: 2023-04-01

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Field	Value	Language
dc.contributor.author	Chen, X
dc.contributor.author	Ma, L https://orcid.org/0000-0003-1115-5051
dc.date.accessioned	2024-05-11T20:55:20Z
dc.date.available	2024-05-11T20:55:20Z
dc.date.issued	2023-04-01
dc.identifier.citation	Pacific Basin Finance Journal, 2023, 78, pp. 101978
dc.identifier.issn	0927-538X
dc.identifier.uri	http://hdl.handle.net/10453/178839
dc.description.abstract	This study examines how crowd investment in investor-led equity crowdfunding is influenced by professional lead investors who act as an agent to lead the fundraising and manage the syndicate on behalf of the principal - crowd investors. Complementing existing equity crowdfunding research where the dominant view of professional endorsement is positive signaling, we apply agency theory and argue that concentrated insider ownership by a lead investor limits crowd investors' bargaining power, increasing agency concerns of potential exploitation. Consistent with this argument, this paper finds that high capital contribution by the lead results in less subsequent crowd investment. We also extend the agency theory by embedding trust in the analysis of the lead and crowd relationship. We find that the level of trust reduces the crowd's insider ownership concerns and moderates the negative impact on fundraising. In contrast to lead investors, capital contribution from early peers attracts follow-on crowd investment. The investor-led model is advocated as the future of equity crowdfunding and crowd investors are encouraged to free ride on the decisions of lead investors. This study brings attention to the costs of investing along with lead investors and provides the first empirical evidence on whether they indeed inject investment confidence.
dc.language	en
dc.publisher	Elsevier
dc.relation.ispartof	Pacific Basin Finance Journal
dc.relation.isbasedon	10.1016/j.pacfin.2023.101978
dc.rights	info:eu-repo/semantics/restrictedAccess
dc.subject	1501 Accounting, Auditing and Accountability, 1502 Banking, Finance and Investment
dc.subject.classification	Finance
dc.subject.classification	3502 Banking, finance and investment
dc.title	Lead investors' insider ownership and crowd investors' agency concerns in investor-led equity crowdfunding
dc.type	Journal Article
utslib.citation.volume	78
utslib.for	1501 Accounting, Auditing and Accountability
utslib.for	1502 Banking, Finance and Investment
pubs.organisational-group	University of Technology Sydney
pubs.organisational-group	University of Technology Sydney/Faculty of Business
pubs.organisational-group	University of Technology Sydney/Faculty of Business/Accounting Discipline
utslib.copyright.status	in_progress	*
dc.date.updated	2024-05-11T20:55:18Z
pubs.publication-status	Published
pubs.volume	78

Abstract:

This study examines how crowd investment in investor-led equity crowdfunding is influenced by professional lead investors who act as an agent to lead the fundraising and manage the syndicate on behalf of the principal - crowd investors. Complementing existing equity crowdfunding research where the dominant view of professional endorsement is positive signaling, we apply agency theory and argue that concentrated insider ownership by a lead investor limits crowd investors' bargaining power, increasing agency concerns of potential exploitation. Consistent with this argument, this paper finds that high capital contribution by the lead results in less subsequent crowd investment. We also extend the agency theory by embedding trust in the analysis of the lead and crowd relationship. We find that the level of trust reduces the crowd's insider ownership concerns and moderates the negative impact on fundraising. In contrast to lead investors, capital contribution from early peers attracts follow-on crowd investment. The investor-led model is advocated as the future of equity crowdfunding and crowd investors are encouraged to free ride on the decisions of lead investors. This study brings attention to the costs of investing along with lead investors and provides the first empirical evidence on whether they indeed inject investment confidence.

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http://hdl.handle.net/10453/178839