Abstract
ABSTRACT The United States Congress passed the JOBS Act of 2012, which allowed small private companies to advertise the sale of their securities to accredited investors. However, this new fundraising method is subject to criticism that it might lead to a lemons market in crowdfunding platforms due to limited information disclosure requirements. This article thus examines this concern, and the results do not support the development of a lemons market. Conversely, we identify a separating equilibrium in which quality companies choose to raise capital from the accredited investors. Firms’ operating characteristics and VC monitoring provide effective signals in the accredited crowdfunding markets.
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