Skip to main content
About HEC About HEC
Summer School Summer School
Faculty & Research Faculty & Research
Master’s programs Master’s programs
Bachelor Programs Bachelor Programs
MBA Programs MBA Programs
PhD Program PhD Program
Executive Education Executive Education
HEC Online HEC Online
About HEC
Overview Overview
Who
We Are
Who
We Are
Égalité des chances Égalité des chances
HEC Talents HEC Talents
International International
Sustainability Sustainability
Diversity
& Inclusion
Diversity
& Inclusion
The HEC
Foundation
The HEC
Foundation
Campus life Campus life
Activity Reports Activity Reports
Summer School
Youth Programs Youth Programs
Summer programs Summer programs
Online Programs Online Programs
Faculty & Research
Overview Overview
Faculty Directory Faculty Directory
Departments Departments
Centers Centers
Chairs Chairs
Grants Grants
Knowledge@HEC Knowledge@HEC
Master’s programs
Master in
Management
Master in
Management
Master's
Programs
Master's
Programs
Double Degree
Programs
Double Degree
Programs
Bachelor
Programs
Bachelor
Programs
Summer
Programs
Summer
Programs
Exchange
students
Exchange
students
Student
Life
Student
Life
Our
Difference
Our
Difference
Bachelor Programs
Overview Overview
Course content Course content
Admissions Admissions
Fees and Financing Fees and Financing
MBA Programs
MBA MBA
Executive MBA Executive MBA
TRIUM EMBA TRIUM EMBA
PhD Program
Overview Overview
HEC Difference HEC Difference
Program details Program details
Research areas Research areas
HEC Community HEC Community
Placement Placement
Job Market Job Market
Admissions Admissions
Financing Financing
FAQ FAQ
Executive Education
Home Home
About us About us
Management topics Management topics
Open Programs Open Programs
Custom Programs Custom Programs
Events/News Events/News
Contacts Contacts
HEC Online
Overview Overview
Executive programs Executive programs
MOOCs MOOCs
Summer Programs Summer Programs
Youth programs Youth programs
Faculty & Research

Research on Equity Crowdfunding Accepted in the RAND Journal of Economics

HEC Paris Professor of Finance Stefano Lovo has had his research paper “Herding in Equity Crowdfunding” accepted for publication in the RAND Journal of Economics, the leading journal in industrial organization. The research is in collaboration with Thomas Astebro, Professor of Entrepreneurship at HEC Paris, Manuel Fernández Sierra of the “Universidad de los Andes”, and Nir Vulkan of the University of Oxford.

 

Equity crowdfunding is an increasingly popular method of raising capital for a business by issuing shares of ownership to a large number of investors through dedicated online platforms. This allows entrepreneurs and startups to access a wide pool of capital from a larger number of investors. A typical crowdfunding campaign lasts 60 days and succeeds only if it raises a pre-announced goal amount. Some view equity crowdfunding campaigns as mechanisms that aggregate dispersed private information about startups’ fundamental values. This view is challenged by the idea that the crowd tends to behave as a herd and may be induced to invest irrationally, simply by seeing others invest.    

In their research, the professors build a theoretical model of equity crowdfunding and test it using data on investors’ actual behavior in a leading UK based equity crowdfunding platform. They ask whether these campaigns can gather the wisdom of the crowd to finance startups with positive net present value and reject the negative net present value projects. They find that investors’ actual behavior reflects what was predicted by their theory, that is they are influenced by the investments of those who preceded them in the same campaign. Thus the momentum at the beginning of the campaign is crucial.

 

Investors are actually influenced by the investments of those who preceded them in the same campaign. Thus the momentum at the beginning of the campaign is crucial.

 

Campaigns that had too few investors at the launch might fail to take-off, as the investors who arrive later are discouraged by the lack of initial investment. Thus, it is possible for profitable startups not to be financed if campaign has an unlucky start. By contrast it is less likely for non-profitable startups to be financed via crowdfunding. Even after a lucky start, a negative NPV project will attract fewer and smaller investments, discouraging future investors to invest and preventing the campaign to reach the goal. 

The RAND Journal of Economics, the leading journal in industrial organization, supports and encourages research in the behavior of regulated industries, the economic analysis of organizations, and more generally, applied microeconomics. 

 

Find research digests from HEC professors on Knowledge@HEC.