Semester Award Granted

Spring 2025

Submission Date

May 2025

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Thesis/Dissertation Advisor [Chair]

Douglas Cumming

Abstract

Equity crowdfunding introduces a contemporary framework for the longstanding practice of aggregating capital from diverse groups of investors, ranging from small individual contributors to large, accredited participants. Specialized digital platforms facilitate this capital assembly process by intermediating transactions between entrepreneurs seeking financing and investors, who receive financial securities in return for their contributions. This fundraising mechanism gained prominence in the United States following the implementation of Title III of the Jumpstart Our Business Startups (JOBS) Act in 2016, which established regulatory frameworks permitting companies to publicly solicit investments online from diverse investor pools.

While equity crowdfunding has expanded capital accessibility, a fundamental challenge lies in the inherent uncertainty surrounding early-stage ventures, which hinders investors' ability to assess risk and determine value. This dissertation employs a two-essay framework using comprehensive data from U.S.-regulated equity crowdfunding campaigns (May 2016-December 2023) to explore how institutional choices serve as credible signals to investors, reducing informational gaps and enhancing outcomes.

The first essay examines incorporation location as a legitimacy signal for small firms. Specifically, it investigates whether Delaware incorporation—with its well-developed legal framework and efficient dispute resolution mechanisms—enhances credibility among investors. Since crowdfunding firms typically lack operational history and have limited mechanisms to mitigate agency concerns, tying themselves to a jurisdiction with strong institutional underpinnings may signal quality to investors. The corresponding analysis reveals that Delaware-incorporated firms achieve superior performance in crowdfunding campaigns, suggesting that legal choices may play a critical role in bridging the startup-investor information gap.

The second essay examines the contrasting signaling effects of equity versus debt offerings. This analysis explores how issuing equity securities, which align founder interests with stockholders, affects campaign success and follow-on funding outcomes. The findings indicate that investors and follow-on investors favor equity securities, specifically preferred equity, more substantially than debt securities, which carry repayment obligations and constrain the operational flexibility of the crowdfunding firm.

Together, these essays contribute to understanding how institutional signals mitigate information asymmetry in entrepreneurial finance, offering implications for entrepreneurs seeking capital, platforms facilitating transactions, and policymakers designing regulatory frameworks in the evolving fintech landscape.

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