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Chair « Finance for Innovation » NL #4 - Publications

01 juin 2020
Carine Girard-Guerraud publishes an academic article in « Finance »

In the article titled "Bankruptcy of ECF-funded firms: Evidence from France*", Carine Girard-Guerraud and her co-authors Karima Bouaiss and Constantin Zopounidis consider that Equity CrowdFunding (ECF) campaigns are costly and observable signals that can influence the future of firms.

Based on signaling theory, they hypothesize that the characteristics of these campaigns are signals that help reduce the moral hazard problem after the fundraising. Drawing on the firm bankruptcy literature, they define bankruptcy as the involuntary death of the firm that materializes through a juridical procedure.

Methodologically, they compare 487 French firms: 277 ECF-financed firms and 220 VC-financed firms that were the same age at the time of the first fundraising.

Several findings are highlighted:

  • ECF-financed firms have a lower bankruptcy rate (27.1% versus 30.45%), yet die earlier (7 years instead of 8 years and 8 months) than VC-financed firms.
  • A positive statistical relationship between the ECF financing and the probability of bankruptcy, suggesting that "lower quality" firms can be financed by ECF rather than VC.
  • The campaign characteristics moderate these initial results. Firstly, the multiplication of ECF campaigns leads to a reduction in the probability of bankruptcy (each additional fundraising reduces the probability of bankruptcy by 15.5%). Secondly, the more investors are attracted to the successive campaigns, the more the probability of bankruptcy decreases or is delayed.

The contributions of this paper are both scientific and managerial. This work enriches ECF literature, which has mainly focused on the explanation of the campaign successful and not their involuntary death. Finally, our results allow to identify how the ECF market can reduce the risk of firm bankruptcy, which from both an economic and social point of view, remains very costly.


* BOUAISS,K., GIRARD-GUERRAUD, C., ZOPOUNIDIS, C.(2020),Bankruptcy of ECF-funded firms: Evidence from France, CNRS 2

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