Legal Institutions, Social Capital, and Financial Crowdfunding: A Multilevel Perspective

Abstract

In recent years, financial crowdfunding for entrepreneurship has experienced exponential growth. Because financial crowdfunding involves a range of risks, it requires comprehensive governance mechanisms. In the entrepreneurial finance literature, both legal institutions and social capital have been discussed in order to address the risks in financial markets. This chapter builds a three-level stylized model to explain how legal institutions and social capital at macro, meso, and micro levels affect the performance of crowdfunding campaigns and the development of the financial crowdfunding market. We explicitly highlight the role of platforms in enforcing laws and building social capital at both meso and micro levels, which has been neglected in extant perspectives on the development of the crowdfunding market, and we develop corresponding propositions.