Bellwether and the herd? Unpacking the u-shaped relationship between prior funding and subsequent contributions in reward-based crowdfunding

C.S. Richard Chan, Annaleena Parhankangas, Arvin Sahaym and Pyayt Oo

Journal of Business Venturing, 2020, vol. 35, issue 2

Abstract: Building on the insights from observational learning and other social influence research, this study challenges the existing literature that proposes a linear relationship between prior funding and subsequent contributions in the crowdfunding setting. Instead, we propose a U-shaped relationship, illustrating a negative relationship between prior funding and subsequent contributions when funding amounts are small and this relationship becomes positive when prior funding amounts are large. Consistent with the rational herding perspective, we assume that individuals do not mindlessly mimic one others' behaviors, but incorporate quality signals into their decision-making. Signals indicating a high quality project such as video quality, as well as the preparedness and passion of the entrepreneur enhance this U-shaped relationship whereas indicators of situational urgency weaken this relationship. Based on a sample of 11,019 daily observations of 333 Kickstarter projects, we find general support for our hypotheses. Our post hoc experiment further supports the mechanisms underlying the U-shaped relationship. This paper extends our understanding of the relationship between past actions and subsequent behavior, and contributes to the literatures of observational learning, crowdfunding, and visual information.

Keywords: Crowdfunding; Observational learning; Threshold models; Bystander effect (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbvent:v:35:y:2020:i:2:s0883902617303567

DOI: 10.1016/j.jbusvent.2019.04.002

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