The Legitimization Effect of Crowdfunding Success: A Consumer Perspective

Abstract

Based on legitimacy and consumer inference theory, we examine when, how, and why past crowdfunding success influences the perceptions and behaviors of consumers. Across five studies (four controlled experiments and one field experiment), our findings demonstrate that a young venture’s past crowdfunding success enhances consumers’ perceptions of its cognitive legitimacy. This “legitimization effect of crowdfunding success” leads to positive outcomes with respect to purchase intentions, brand attitudes, and consumers’ willingness to recommend young ventures to others. These effects are robust across different product categories. However, our findings also reveal that these positive effects occur exclusively for young ventures, whereas they disappear or even reverse for established ones.

Does a Past Category’s Success Influence Existing Entrepreneurial Fundraising?: A Legitimacy Spillover Perspective

“…Second, in the crowdfunding world, few entrepreneurs have patents, endorsements from partners with high status, or achievement records to demonstrate their capability and legitimacy (Courtney et al, 2017;Drover et al, 2017;Kuppuswamy & Bayus, 2017). The success of a crowdfunding campaign confirms that its founders have the competence to perform better than other campaigns in a fairly competitive market, and investors can use this observed category success signal to assess the feasibility and normative desirability of nascent products (Maier et al, 2021). Thus, the category's success rate can be an important index, suggesting that recent projects inside the category are more attractive, excellent in quality, and have incentivized more investors to participate.…”

“…We did not adopt a dummy variable to measure entrepreneurs' past successes, as suggested by Maier et al (2021), because we believe this measure fails to capture the full variation in entrepreneurs' past successes on this crowdfunding platform.…”

Digital Entrepreneurship: What is New if Anything?

“…As seen with the example of LinkedIn, being able to raise enough capital over long time periods can be particularly crucial for digital entrepreneurs to grow a critical mass of users. However, digital means have enabled new ways of funding such as crowdfunding or Initial Coin Offerings (ICOs) that can also act as market tests (Block et al 2021 ; Maier et al 2021 ; Viotto da Cruz 2018 ). As such, digital technologies have shifted power and transparency in new venture funding.…”

German Financial State Aid During Covid-19 Pandemic: Higher Impact Among Digitalized Self-Employed

“…Bigne et al, 2021;Wurman, 2001), to involve their customers in the innovation and production processes designing more customized and individualized products and services (e.g. Franke and Piller, 2004;Maier et al, 2021), and to reach a broader and more heterogeneous customer base (e.g. Dinner et al 2014;Li und Kannan 2014).…”