Observational learning and willingness to pay in equity crowdfunding

Walther, Martin; Bade, Marco

doi:10.1007/s40685-019-00107-8

Cited by 4 publications

(9 citation statements)

References 50 publications

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“…Second, the number of large investments during a campaign appears to have a negative effect on startup survival. This contradicts the positive effect of large investments on the number of investments and their size on Companisto (Hornuf and Schwienbacher 2018;Walther and Bade 2020). Our finding indicates that large investments might have led to information cascades and consequently, inefficient investments.…”

Section: Discussioncontrasting

confidence: 94%

“…In this context, Hornuf and Schwienbacher (2018) demonstrate that large investment amounts and positive comments lead to a larger number of investments in the days following such investments and comments. Similarly, Walther and Bade (2020) show that large investments in the campaign increase investors' willingness to pay.…”

Section: Offering and Post-offering Successmentioning

confidence: 98%

“…Large investments of other investors have a positive effect on willingness to invest: -Hornuf and Schwienbacher (2018) demonstrate a positive effect of large investment on the number of investments in the subsequent days on Companisto and three other German platforms - Walther and Bade (2020) show that large investments increase investors' willingness to pay on Companisto…”

Section: Large Investmentsmentioning

confidence: 99%

“…Instead, we rely on the results of other studies and assume that investors on Companisto show a similar investment behavior as those in the studies considered. However, the considered studies, for example, on the effects of updates and large investments on the investments of the crowd, use data sets including a large proportion of campaigns from Companisto (Hornuf and Schwienbacher 2018;Walther and Bade 2020).…”

Section: Limitationsmentioning

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: Discussioncontrasting

confidence: 94%

Section: Offering and Post-offering Successmentioning

confidence: 98%

Section: Large Investmentsmentioning

confidence: 99%

Section: Limitationsmentioning

confidence: 99%

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Signals in equity-based crowdfunding and risk of failure

Reichenbach

Walther

2021

Financ Innov

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“…Walther and Bade (2020) analyzed ECF projects in Europe and found that “hot” campaigns with “large investors” attracted significantly greater funding. These campaigns were analyzed from the viewpoints of (1) geographical factors, (2) word-of-mouth and (3) risk factors.…”

Section: Prior Researchmentioning

confidence: 99%

Equity crowdfunding and financial literacy of individual investors in Japan

Fujii

Hosomi

Nose

2021

JCMS

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PurposeThis study aims to fill the gap in previous research that focuses on the superficial aspects of equity crowdfunding (ECF) campaigns and financial practices by examining financial literacy aspects, such as due diligence and valuation, in terms of factors that influence Japanese individual investors' investments in ECF.Design/methodology/approachThe status of information disclosure in ECF campaigns is checked. In addition, the feasibility of the initial due diligence and valuation using this information is verified. Specifically, the lack of financial literacy hypothesis is developed and (1) expected market capitalization in the final fiscal year of the business plan and (2) expected returns on investment (IRR: internal rate of return) are estimated.FindingsECF campaigns in Japan disclose information equivalent to that obtained by professional venture capitalists. Analysis of the disclosed business plan allows for initial due diligence and valuation. By contrast, due diligence reveals that some projects are unlikely to be listed even if their business plans are met, and others have low IRRs. In addition, a stock acquisition rights project, in which even professional investors are unable to calculate IRRs, is completed at the same rate as a common stock project; this suggests that individual investors lack financial literacy.Originality/valueAnalyzing ECF from financial literacy aspects, such as due diligence and valuation, is unique. Such aspects are essential for private equity investments but have not been addressed in previous studies.

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

Bade

Walther

2021

Rev Manag Sci

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This study examines drivers of investment probability in equity-based crowdfunding using a hand-collected and comprehensive data set from a well-established platform. The analysis confirms several effects that have been reported in the recent literature on other crowdfunding markets. Extending recent research, we study moderators of local preferences of investors. Novel to the literature, we find that (1) local preferences are more pronounced in campaigns of younger ventures, (2) herding-like behaviour is stronger in local campaigns and (3) local investors are more responsive to updates posted by entrepreneurs, compared to non-locals. Our results suggest that investors allocate more attention to campaigns for which they have information advantages, such as local campaigns, due to their limited capacity to process information. Such behaviour may eventually amplify information asymmetry and local preferences. Our findings have practical implications for entrepreneurs, investors and platforms.

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Observational learning and willingness to pay in equity crowdfunding

Cited by 4 publications

References 50 publications

Signals in equity-based crowdfunding and risk of failure

Signals in equity-based crowdfunding and risk of failure

Equity crowdfunding and financial literacy of individual investors in Japan

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

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