Quality ratings in equity crowdfunding

This study investigates the impact of external certification on asymmetric information in equity crowdfunding at the example of the UK-based rating agency CrowdRating. The existence of rating agencies in equity crowdfunding is a new phenomenon and this research paper is to the knowledge of the author the first of its kind. Following the rationale of certification theory, positive ratings are expected to alleviate the severity of asymmetric information. Multiple regressions are performed to identify the impact of rating scores on funding success as proxy for the added informational value of CrowdRating scores beyond the impact of signaling and third party endorsement effects. The regression results do not indicate the hypothesized positive impact of higher rating scores on better funding outcomes. However, I cannot conclude that CrowdRating fails in providing sufficiently valuable information to alleviate asymmetric information because the impact of rating scores on the funding outcome is likely distorted by CrowdRating’s small current subscriber base.