New methods of entrepreneurial firm financing: Fintech, crowdfunding and corporate governance implications

• Author: Silvio Vismara,David Ahlstrom,Douglas J. Cumming
• DOI: http://doi.org/10.1111/corg.12258
• Date: 01 September 2018
• Published date: 01 September 2018

EDITORIAL

New methods of entrepreneurial firm financing: Fintech,

crowdfunding and corporate governance implications

1|INTRODUCTION

Starting in May of 2016, small businesses and start‐ups were permit-

ted to sell shares to the general public in the United States on

crowdfunding portals. The U.S. Securities and Exchange Commission

has defined rules that make equity crowdfunding a legal means by

which firms are able to raise seed capital online. The crowdfunding

phenomenon is now slowly spreading to other countries (Barbi &

Bigelli, 2017). These developments have given rise to a veritable

explosion of new research on crowdfunding, financial technology

(fintech), and other alternative methods of start‐up financing

(Cumming & Hornuf, 2018; Short, Ketchen, McKenny, Allison, &

Ireland, 2017). This work has emerged in a variety of fields that include

but are not limited to entrepreneurship, finance, marketing, informa-

tion systems, law, and strategy (Ahlers, Cumming, Günther, &

Schweizer, 2015; Mollick, 2014; Newman, Schwarz, & Ahlstrom,

2017; Steinhart, Gao, & Fan, 2017).

The emergence of fintech and crowdfunding has also given rise to

unique and pronounced concerns with information asymmetries

between insiders and outsiders, along with related agency and other

governance concerns (Vismara, 2016). As with IPOs, for instance, the

ownership base of entrepreneurial ventures raising capital in

crowdfunding has been opened up for the first time to external share-

holders. Moreover, crowdfunding platforms that allow fundraising from

a pool of online backers will also need to cope with collective action

problems (Olson, 1965) as crowd‐investors have neither the ability

nor the incentive, because of their relatively small investments, to

devote adequate resources to due diligence. While collective action

problems limit investors' monitoring incentives, entrepreneurs can be

tempted to shirk and engage in self‐dealing and opportunistic behavior.

Against that background, this special issue of Corporate Gover-

nance: An International Review (CGIR) sought to attract scholarly sub-

missions from a wide variety of disciplinary and methodological

approaches to examine the governance causes and consequences of

the emerging fintech and crowdfunding arenas. Altogether, we

received over 50 manuscripts that dealt with questions around five

key themes introduced in the call for papers. First, what are the gover-

nance problems arising from agency issues such as the separation

between ownership and control (principal‐agent) and between control-

ling and minority shareholders (principal‐principal; Jensen & Meckling,

1976; Young, Peng, Ahlstrom, Bruton, & Jiang, 2008) in crowdfunding

markets? Second, while most of recent IPOs are offered exclusively to

institutional investors, crowdfunding investors are likely to be more

diverse than shareholders of newly listed companies (Barbi & Bigelli,

2017). As such, how does this impact corporate governance mecha-

nisms? Third, while there has been some research in crowdfunding that

focuses on the success factors of the campaigns (Frydrych, Bock,

Kinder, & Koeck, 2014), there is comparatively less work on the

ultimate goal of crowdfunding, namely, to build enduring businesses.

That is, what happens after the crowdfunding campaigns? Fourth,

globalization and technological innovation interact in their effect on

crowdfunding, since the reduction in communications costs owing to

technological innovation have made crossborder investments easier,

thereby reducing the costs of monitoring investments over long dis-

tances. Therefore, it may be asked, given financial and communications

innovations and eases in regulation on new venture creation (Ahlstrom,

2010), what are the implications for the governance of entrepreneurial

ventures associated with fintech and crowdfunding around the

world? And how do national institutions interact with fintech and

crowdfunding (Globerman, Peng, & Shapiro, 2011)? Fifth, corporate

governance practices in crowdfunding differ across countries (Barbi &

Bigelli, 2017). Will recent trends and innovation in financing

approaches and sources reduce such differences? Or will these differ-

ences persist or even be amplified by local financing and traditional

institutional controls (Globerman et al., 2011)? How can we differenti-

ate the role of more formal, legal institutions from less formal ones

embodied in culture and social capital (Cumming & Schwienbacher,

2018; Scott, 2013) in addressing and explaining such differences?

After the call for papers and subsequent submissions, a careful

external review process ensued. It was managed in conjunction with

the main regular editors of CGIR who oversaw the process and partic-

ipated in decisions on all rounds for all papers. Finally, four papers

were selected to appear in this special issue of CGIR. These papers

are summarized in the next section.

2|SYNOPSES OF THE ARTICLES IN THE

SPECIAL ISSUE

This special issue contains four papers in addition to this introductory

editorial. The papers accepted for this special issue were selected to

provide new evidence on the corporate governance implications of

DOI: 10.1111/corg.12258

310 © 2018 John Wiley & Sons Ltd Corp Govern Int Rev. 2018;26:310–313.wileyonlinelibrary.com/journal/corg