Do small funding amounts lead to reverse herding? A field experiment in reward-based crowdfunding

Zaggl, Michael A.; Block, Joern

doi:10.1016/j.jbvi.2019.e00139

Cited by 29 publications

(17 citation statements)

References 44 publications

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“…From financial markets research, it is commonly known that herding behavior significantly influences investments (Scharfstein and Stein 1990). It has also been observed in crowdfunding, for example, in online peer-topeer lending (Herzenstein et al 2018;Lee and Lee 2012;Zhang and Liu 2012), equity crowdfunding (Burtch 2011;Hornuf and Schwienbacher 2018;Moritz et al 2015;Vulkan et al 2016;Hornuf and Neuenkirch 2017;Å stebro et al 2018;Vismara 2018), reward-based crowdfunding (van de Rijt et al 2014;Colombo et al 2015;Kim et al 2015;Zaggl and Block 2019), as well as donation-based (Burtch et al 2013).…”

Section: Observational Learningmentioning

confidence: 98%

Observational learning and willingness to pay in equity crowdfunding

Walther

Bade

2020

Bus Res

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This study examines interdependencies between investments of equity crowdfunders. Based on hand-collected data from a well-established equitycrowdfunding platform, we find strong indication that investors observe previous investments to determine their willingness to pay for equity shares. Furthermore, the investment behavior of predecessors may lead investors to deviate from average investment behavior. In particular, investors are willing to pay more than the average investment, when the focal campaign is hot or there have been many large investments in the campaign. Remarkably, a high number of all previous investments over the entire period of the campaign as well as co-financing by presumably sophisticated investors negatively influence willingness to pay. This suggests that crowd investors are subject to partial crowding-out. These findings are different on the platform level, which suggests that investors' behavior is rather information than sentiment-driven.

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Section: Observational Learningmentioning

confidence: 98%

Observational learning and willingness to pay in equity crowdfunding

Walther

Bade

2020

Bus Res

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“…It may give rise to herding-like behaviour, meaning "everyone doing what everyone else is doing" (Banerjee 1992, p. 798). Recent research shows that herding-like behaviour is present on crowdfunding platforms (Burtch 2011;Lee and Lee 2012;Zhang and Liu 2012;Burtch et al 2013;van de Rijt et al 2014;Colombo et al 2015;Kim et al 2015;Moritz et al 2015;Vulkan et al 2016;Hornuf and Neuenkirch 2017;Vismara 2018;Åstebro et al 2019;Zaggl and Block 2019;Walther and Bade 2020). However, no attention has been paid to the relation between rational herding-like behaviour and local preferences.…”

Section: Hypothesesmentioning

confidence: 99%

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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“…In addition, three studies have run randomized controlled experiments where a treatment group receives an early donation and the control group does not (Koning and Model, 2013;Van de Rijt et al, 2014;Zaggl and Block, 2019). Koning and Model (2013) and Zaggl and Block (2019) both find that projects to which they made a small initial contribution (e.g. $5) significantly decrease the chances of success for a project.…”

Section: Related Literaturementioning

confidence: 99%

Herding in Equity Crowdfunding

et al. 2017

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Do equity crowdfunding investors rationally or irrationally herd? We build a model of rational information aggregation where both informed and uninformed investors arrive sequentially and rationally choose whether and how much to invest. We compare the predictions of the model to several alternative models of irrational herding and no herding, and test those predictions using data on all investments on a leading European equity crowdfunding platform. We show empirically that the size and likelihood of a pledge is causally affected by the size of the most recent pledge, and by the time elapsed since the most recent pledge. These results are consistent with rational information aggregation, and inconsistent with naïve herding, independent investments, and common information shocks. However, there is still room for negative information cascades to occur. Implications for platform design and regulatory actions are discussed.

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Do small funding amounts lead to reverse herding? A field experiment in reward-based crowdfunding

Cited by 29 publications

References 44 publications

Observational learning and willingness to pay in equity crowdfunding

Observational learning and willingness to pay in equity crowdfunding

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

Herding in Equity Crowdfunding

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