The effects of promotional narratives in entrepreneurial financing: Evidence from pre-sale crowdfunding11We acknowledge the financial support from the National Natural Science Foundation of China (72073063)

Ye Liu, Siyue Liu and Xuezhou Zhao

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: Based on a sample of pre-sale crowdfunding projects launched on the Kickstarter platform between 2009 and 2021, we find that using promotional words in project descriptions positively affects crowdfunding performance and the effect becomes stronger over time. We also find that, when lying cost is high, when the proportion of naïve investors is high, or when there exists a contemporaneous signal, the positive association between the use of promotional words and crowdfunding performance is more pronounced, implying that investors discount founder’s promotional narratives less in these cases. Finally, we find that the use of promotional words is correlated with a higher probability of delayed delivery and refund requests, suggesting the employment of promotional narratives reduces the efficiency of resource allocation. The above findings are inconsistent with the classical signaling theory but consistent with the theory of cheap talk communication with lying costs. Overall, this study expands the research on signaling behavior in entrepreneurial financing by incorporating the theory of cheap talk communication with lying costs into this field.

Keywords: Promotional narratives; Crowdfunding performance; Cheap talk; Lying costs (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006872

DOI: 10.1016/j.irfa.2024.103755

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