Crowdfunding and Bank Stress
Bank instability may induce borrowers to use crowdfunding as a source of external finance. A range of stress indicators help identify banks with potential credit supply constraints, which then can be linked to a unique, manually constructed sample of 157
- PDF / 481,794 Bytes
- 38 Pages / 439.37 x 666.142 pts Page_size
- 37 Downloads / 215 Views
Abstract Bank instability may induce borrowers to use crowdfunding as a source of external finance. A range of stress indicators help identify banks with potential credit supply constraints, which then can be linked to a unique, manually constructed sample of 157 new ventures seeking equity crowdfunding, for comparison with 200 ventures that do not use crowdfunding. The sample comprises projects from all major German equity crowdfunding platforms since 2011, augmented with controls for venture, manager, and bank characteristics. Crowdfunding is significantly more likely for new ventures that interact with stressed banks. Innovative funding sources are thus particularly relevant in times of stress among conventional financiers. But crowdfunded ventures are generally also more opaque and risky than new ventures that do not use crowdfunding. Keywords Crowdfunding tures Credit crunch
⋅
⋅
Bank stress
⋅
Funding alternative
⋅
New ven-
1 Introduction Akerlof’s (1970) seminal lemons problem epitomizes the key challenge faced by any investor: how to select projects from a pool of opaque applicants. Traditionally, banks help resolve the information asymmetry between savers and investors by developing screening competences and acting as delegated monitors (Diamond 1984). But dramatically reduced transaction and information acquisition costs, together with historically low interest rates, impede banks’ incentives to engage in D. Blaseg Goethe-University Frankfurt, Theodor-W.-Adorno-Platz 4, 60323 Frankfurt, Germany e-mail: [email protected] M. Koetter (✉) Frankfurt School of Finance and Management, Deutsche Bundesbank, and IWH, Sonnemannstr. 9-11, 60314 Frankfurt, Germany e-mail: [email protected] © Springer International Publishing Switzerland 2016 P. Tasca et al. (eds.), Banking Beyond Banks and Money, New Economic Windows, DOI 10.1007/978-3-319-42448-4_3
17
18
D. Blaseg and M. Koetter
costly information generation, which can lead to the contraction of credit (Puri et al. 2011; Jiménez et al. 2012) or misallocated funding to too risky projects (Dell’Ariccia and Marquez 2004; Jiménez et al. 2014). Against this backdrop, recent studies by Belleflamme et al. (2013) and Mollick (2014) hypothesize that crowdfunding may rival bank finance and connect even small savers with risky new ventures that face traditionally tighter financing constraints (e.g., Cassar 2004; Robb and Robinson 2014). We test whether the wisdom-of-the-(investor)crowd becomes a more likely substitute for bank credit as a major source of funding for new ventures if young ventures’ banks are shocked. We construct a novel, hand-collected data set of ventures’ uses of equity crowdfunding in Germany, their relationships with banks, and various venture traits since 2011. By observing venture-bank relationships, we can identify if ventures connected to shocked banks are more likely to use crowdfunding in an attempt to substitute for contracting bank credit supply. In so doing, we move beyond the important descriptive evidence in this nascent strand of
Data Loading...
