Crowdfunding and bank financing: substitutes or complements?

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In this paper we analyze a irm choice between crowdfunding and bank financing. For many entrepreneurs it is an important issue. We analyze a model where the choice of financing is a¤ected by moral hazard problem regarding the choice of production scale that favors bank financing, and by the uncertainty about market demand that favors crowdfunding. We argue that long crowdfunding campaigns or campaigns with large targets usually are less efficient in mitigating moral hazard problem than small/short campaigns. We also argue that high-quality firms and firms with potentially large markets will tend to select bank financing while projects with largest amount of investment should select mixed financing where the firm uses a short crowdfunding campaign and a bank loan. Most of our model empirical predictions have not been directly tested sofar while they are indirectly consistent with available evidence.
Original languageEnglish
Number of pages51
JournalSmall Business Economics
Early online date15 Jan 2022
Publication statusE-pub ahead of print - 15 Jan 2022


  • crowdfunding, debt financing, moral hazard, reward-based crowdfunding, demand uncertainty

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