Research On The Financing Of Equity Crowdfunding Projects Under The Leading And Following Investment Mechanism

With the help of mass entrepreneurship and innovation policy,the innovation and entrepreneurship in China develop prosperously and the number of start-ups increases rapidly.These newly established start-ups need substantial capital to operate and develop.The emergence of equity crowdfunding becomes a new financing channel for start-ups to alleviate the difficulty of financing.In equity crowdfunding practice,the financing of projects is important: start-ups get capital via projects financing;investors get shares of start-ups when the financing of projects is successful;platforms get profits from successfully financed projects.Thus,the financing process is vital in equity crowdfunding.Studying on the financing process is of great significance.Scholars also pay great attention to equity crowdfunding.In prior studies,the research on factors affecting the performance of equity crowdfunding is the hotspot.According to existing studies,these factors can be classified into three levels: start-ups level,projects level and investors level.Although many studies have been done on this theme,most researches are focus on the financing stage of equity crowdfunding projects.However,the financing process of equity crowdfunding is consisted of pre-investment stage,financing stage and post-investment stage.Thus,we can not get overall understanding about the financing process of equity crowdfunding projects,if we only study the financing stage in equity crowdfunding.Moreover,leading and following investment mechanism is widely used in Chinese equity crowdfunding practice.The participation of leading investors is the core of this mechanism.Scholars have proven that leading investors can promote the financing performance of equity crowdfunding projects.However,it remains unknown about how leading investors help equity crowdfunding projects get financing,and what leading investors do for the new funding of projects in post-investment stage.Therefore,three research questions can be raised: 1.In pre-investment stage,what factors affect equity crowdfunding platforms to launch projects online? 2.In financing stage,how do professional investors(leading investors)help equity crowdfunding projects get financing? 3.In post-investment stage,do professional investors(leading investors)help projects get new funding? If so,how do they help start-ups?By using literature research and regression analysis,I study three research questions above on the basis of signaling theory,agency theory and trust theory.The main conclusions of this study are illustrated from three aspects: 1.In the pre-investment stage,five factors affect online of projects: geographical distance,media in project description,credit of start-ups,industry and repurchasing promise.Geographical distance between start-ups and platforms negatively affects the possibility of projects online.The usage of media in project description positively positively affects the possibility of projects online.The credit of start-ups reflects their quality.Equity crowdfunding platforms are more inclined to list projects sponsored by start-ups with high credit.Equity crowdfunding platforms also have the preference for projects engaged in seven strategic emerging industries.Repurchasing promises in project descriptation positively affect the online of projects,and also fully mediate the relationship between credit and online.2.In the financing stage,the participation of leading investors is the key factor influencing the financing performance of projects.Leading investos help projects get financing from two aspects.Firstly,direct investment from leading investors significantly improves the financing performance of start-ups.Secondly,the leading investors' reputation can attract following investors.The higher their reputation is,the more following investors invest in projects.3.In post-investment stage,leading investors also play a key role in the start-ups' new funding round.As the expert system in equity crowdfunding,other investors will trust leading investors' decision and ability.Then certification effect arises.The more professional leading investors are,the higher possibility for start-ups to aquire new funding is.Moreover,projects invested by institutional leading investors are more likely to receive new funding.Entrepreneurial environment in the location of start-ups also postitively affects the possibility of new funding.The theoretical contribution of this study can be divided into three aspects.Firstly,this study expands the research field of equity crowdfunding.This research not only focuses on the financing stage,but also takes the research questions in pre-investment stage and post-investment stage into consideration.Secondly,this study discovers the governance mechanism of agency problems in leading and following mechanism—reputation mechanism.Thirdly,this study deepens our understanding about the role of leading investors in equity crowdfunding.The implication for practice can be illustrated from two levels: micro level(for start-ups,investors and platforms),macro level(for government).Finally,the deficiencies in this study and the suggestions for future research are also analyzed from three apects.1.In this study,the role of start-ups' credit is discussed only in pre-investment stage.It is recommended to study the role of start-ups' credit in the financing and post-financing stage.2.In this study,reputation mechanism is found as the governance of agency problems between following investors and leading investors.The dual principal agent problem in equity crowdfunding needs futher study.3.In this study,the role of leading investors in the new funding round of projects is important.But the effect of leading investors' post-investment management on start-ups development is unclear and calls for future study.