Return-based Crowdfunding and Entrepreneurship

I study whether access to return-based crowdfunding decreases the importance of local financial market development for entrepreneurial activities. Using both the staggered adoption of intrastate equity crowdfunding across U.S. states and the 2016 passage of Regulation CF, I find that access to crowdfunding increases the number of business applications, and this effect is stronger in states where local financial markets are less developed. Moreover, the increase in the number of business applications is not driven by corporations, but rather by sole proprietorships, partnerships, and limited liability firms. I also find that by reducing local bias in entrepreneurship, intrastate crowdfunding benefits entrepreneurs who work in states where they were not born. Interestingly, intrastate crowdfunding, but not Regulation CF, increases the number of business applications that turn into employer businesses. While intrastate crowdfunding increases job creation and self-employment and decreases job destruction, Regulation CF decreases establishment entry and exit. Overall, the findings suggest that financial innovation mitigates the frictions entrepreneurs face in access to financing