Local preferences and the allocation of attention in equity-based crowdfunding

Bade, Marco; Walther, Martin

doi:10.1007/s11846-020-00429-6

Cited by 20 publications

(16 citation statements)

References 89 publications

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“…#Updates has no significant effect in any of the regressions. The generally positive crowd response to updates, as found in Hornuf and Schwienbacher (2018) and Bade and Walther (2021), is not accompanied by a better post-offering performance. Thus, we cannot confirm H5.…”

Section: Updates (H5)mentioning

confidence: 71%

“…The relationship between investors and ventures, which is characterized by information asymmetries and high uncertainty about the risk of failure, can be considered a principal-agent relationship. The two most important problems occurring in this context are adverse selection (Akerlof 1970) and moral hazard (Arrow 1984). To reduce information asymmetry, and consequently, agency problems, screening (Stiglitz 1975) and signaling (Spence 1973) can be used.…”

Section: Theorymentioning

confidence: 99%

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Signals in equity-based crowdfunding and risk of failure

Reichenbach

Walther

2021

Financ Innov

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This study investigates signal validity in equity-based crowdfunding by examining whether signals that increase crowd participation are associated with higher post-offering success. Post-offering success is measured as the probability of survival. We use a hand-collected data set of 88 campaigns with over 64,000 investments and 742 updates from a well-established and leading German equity-based crowdfunding platform, Companisto. We find that indicating that the chief executive officer holds a university degree and a higher number of business-related updates are associated with a lower risk of failure, which is in line with recent research on offering success. The number of updates on external certification, promotions, and the team is associated with a higher risk of failure. In contrast to recent findings on offering success, we find that the equity share offered is positively related to post-offering success, whereas a high number of large investments or updates on campaign development are accompanied by a higher probability of failure. Our results provide guidance for entrepreneurs and investors regarding which signals are worth sending or using. Furthermore, these results suggest that investors are partly using wrong signals and challenge the rationality and wisdom of the crowd.

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Section: Updates (H5)mentioning

confidence: 71%

Section: Theorymentioning

confidence: 99%

Signals in equity-based crowdfunding and risk of failure

Reichenbach

Walther

2021

Financ Innov

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“…This dynamic allows fundraisers to recognize opportunities and to proactively contribute to the cognitive dimension of social capital in this online process. Bade and Walther (2021) find a positive relation between updates and the success of the crowdfunding campaign. In sum, the interactivity makes the project more competitive and attractive to potential investors.…”

Section: H2: the Patience Signal Has A Negative Impact On The Probabi...mentioning

confidence: 72%

Signalling Strategy and Success of Crowdfunding Campaign

Zribi

Khoufi

2022

IJBS

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Improving the funding results of crowdfunding campaigns is a pivotal point for entrepreneurs, investors, and platforms. Building upon previous research in the field of crowdfunding and signaling theory, we propose a logistic regression to identify the determinants of the success of 5228 KissKissBankBank crowdfunding. The main focus is on estimating the role of signalling opportunities provided to project initiators and funders in mitigating the harmful consequences of asymmetric information. Our main results reveal that, as expected, the success of crowdfunding campaigns is promoted by the signal of identity, patience, pointing, reciprocity, intention and interactivity. The ambition signal is a factor that hinders funding success. Contrary to our research hypotheses, the signal of reputation and social capital has a negative impact on the probability of crowdfunding projects' success. The findings provide not only empirical evidence to understanding the importance of the role of signals in determining the success of crowdfunding campaigns but also useful tools for stakeholders in developing their own crowdfunding strategies at an early stage.

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“…A recent study by Bade and Walther (2021), however, speaks again in favour for the existence of Home Bias in crowdfunding. The authors examine drivers of investment probability in equity-based crowdfunding using a hand-collected data set of 94 projects that were published on the Companisto platform until January 2019.…”

Section: Guo Et Al (2018) Study the Dynamics Of Home Bias In Crowdfun...mentioning

confidence: 96%

“…However, this assumption is not supported by all authors. Some research provides evidence that Home Bias prevails (e.g., Mendes-Da- Silva et al 2016;Gallemore et al 2019;Bade & Walther, 2021). Due to the existing controversary, additional research is required to evaluate the full potential of crowdfunding to alleviate the influence of geography in business finance.…”

Section: The Changes Brought By Crowdfundingmentioning

confidence: 99%

Home-bias in online fundraising: an analysis of international reward-based crowdfunding

Filatov¹

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Home Bias is the recognized tendency of individuals to choose geographically proximate interaction partners. In business finance, Home Bias is to the detriment of both investors and entrepreneurs because it promotes an uneven distribution of capital and contributes to the Global Finance Gap. The aim of this thesis is to examine the existence of Home Bias in the emerging financing channel of reward-based crowdfunding. Crowdfunding, in general, is different from traditional financing because it shifts the entire fundraising process to a digital space on the internet. Moreover, it introduces new community-based trust mechanisms and eliminates some of the distance-related costs. The focus of this thesis lies on reward-based crowdfunding, which is currently the most popular, unrestricted and, therefore, most international form of crowdfunding. To assess whether international reward-based crowdfunding is prone to Home Bias, this thesis employs a Negative Binomial regression model that examines the relationship between the count of crowdfunding project backers and their respective distance to entrepreneurs. The model builds on an aggregate data sample of 1,118,654 project-specific country-to-country investment observations (from 211,695 projects) that occurred on Kickstarter platform between 2009 and 2020, making it the largest and most up to date crowdfunding study. Although large sample or “Big Data” models provide many advantages (e.g., higher representativeness), and have been commonly used in the crowdfunding literature, they however introduce some caveats that have been mostly ignored by previous research. One main issue that might distort results in Big Data models is that they are capable to identify marginally small patterns in the data that, although statistically significant in terms of p-values, might have little relevance in practice. Therefore, this thesis goes beyond the traditional analysis of statistical significance and devotes great attention to the assessment of different marginal effect sizes to identify the practical relevance of findings. The thesis also investigates the effect of additional variables that may have potential effect on the count of backers namely GDP per capita of backers and entrepreneurs, project category, third-party endorsements, herding behaviour and Covid-19 pandemic. The results suggest that although geographical distance appears to have a statistically significant negative influence on the count of backers, its practical effect is very small. This indicates that Home Bias has a comparably small relevance in international reward-based crowdfunding and that entrepreneurs should not overestimate its impact when planning their crowdfunding campaigns. Moreover, neither individual wealth of backers nor entrepreneurs, project category or global economic crises seem to affect the success of crowdfunding campaigns in a practically relevant manner. However, herding behaviour and third-party endorsements do seem to have a statistically and practically relevant influence on the count of backers and, therefore, should be considered in the planning of crowdfunding campaigns. The overall findings of this thesis suggest that some of the prior research in crowdfunding might have overestimated the practical relevance of certain influencing factors (e.g., geographical distance and individual wealth), perhaps by focusing too much on statistical significance while ignoring the capability of Big Data models to identify marginally small and practically irrelevant patterns in the data.

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Local preferences and the allocation of attention in equity-based crowdfunding

Cited by 20 publications

References 89 publications

Signals in equity-based crowdfunding and risk of failure

Signals in equity-based crowdfunding and risk of failure

Signalling Strategy and Success of Crowdfunding Campaign

Home-bias in online fundraising: an analysis of international reward-based crowdfunding

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