Value Creation in Crowdfunding Projects-Evidence From an Emerging Economy

Abstract

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Does the Role of Media and Founder’s Past Success Mitigate the Problem of Information Asymmetry? Evidence from a UK Crowdfunding Platform

“…Oba et al [8] If a project is successful, then it creates a value proposition and signals it effectively.…”

“…Moreover, the structural difficulties inherent in start-up opportunities make it hard to attract external financing [3,4] In recent years, new forms of financing have gained traction, especially crowdfunding, which is defined as "allowing individual investors an opportunity to pool relatively small amounts of money together to meet the funding requirements of new or expanding ventures" [5] (p. 10). According to Schwienbacher and Larralde [6] crowdfunding is like an open call on the Internet through which project founders Oba et al [8] examined the relationship between platform reputation and the success of the project under the premise of value co-creation and information asymmetry. This explains what contributes to the success or failure of a project.…”

“…Despite its popularity, crowdfunding faces several key challenges, one of them being the information asymmetry between founders and influential backers. This is because the project founder has more knowledge of the quality of the product/service while the backers have less information about the intellectual capital and credibility of the project founder [8]. Therefore, the founders must disclose credible information about the value proposition to the potential backers so that they can assess the potentiality of the crowdfunding projects [6].…”

“…Kirmani and Rao [10] found that information asymmetry arose whenever there is a lack of information between the investors and the customers regarding the qualitative attributes of the firm. To alleviate this asymmetric information gap, the potential backers must determine the start-up attributes and the founder's actions that may reflect the prevailing quality of the start-up [11].In crowdfunding, as compared to traditional financial instruments, transactions are mediated on platforms which increase the ambiguity of the relationship between backers and the founder [8]. This means that the relationship between backers and founders in crowdfunding can be evaluated through the principal-agent theory.…”

“…In crowdfunding, as compared to traditional financial instruments, transactions are mediated on platforms which increase the ambiguity of the relationship between backers and the founder [8]. This means that the relationship between backers and founders in crowdfunding can be evaluated through the principal-agent theory.…”