Cumming Wins Crowdfunding Research Award from USC

Finance professor Douglas Cumming was part of a team that won an award for distinguished research on crowdfunding from the University of Southern California.

Cumming and his collaborators received the 2021 Helena Yli-Renko Research Impact Award, sponsored by the Lloyd Greif Center for Entrepreneurial Studies at the USC Marshall School of Business.

The paper, "Signaling in Equity Crowdfunding,” was published in the journal Entrepreneurship Theory and Practice. The award honors entrepreneurship research that appeared in top-tier journals in 2015 and received the highest number of citations in the five years after publication. 

Equity crowdfunding involves selling small ownership stakes in start-up companies through online platforms and with minimal regulation and disclosure. 

“Our paper was the first in the world to examine factors that affected success in equity crowdfunding campaigns,” Cumming said. 

His co-authors were Gerrit Ahlers, an associate partner at McKinsey & Co. in Germany; Christina Guenther, a professor of economics at WHU - Otto Beisheim School of Management in Germany; and Denis Schweizer, a professor of finance at Concordia University in Canada.

“The theory and evidence we provide shows that retaining equity and providing more detailed information about risks can be interpreted as effective signals and can therefore strongly impact the probability of funding success,” Cumming said. “Ineffective voluntary disclosure and/or a badly designed campaign in terms of equity retention can lead to investors not contributing funds, which happens frequently in equity crowdfunding.”

Retaining equity means that entrepreneurs don’t sell too much of their equity in a crowdfunding campaign, such as a 25 percent stake, Cumming explained. Investors would be discouraged to see such a large share because it would mean there isn’t much room for adding new investors as the company grows and seeks additional capital, he added. 

The study pre-dated the start of equity crowdfunding in the United States through the JOBS Act so the researchers used data from Australia. Since the study was published, it has been replicated with studies from other countries that had similar findings, Cumming said. 

-FAU-