Role of successive round as a quality signal in equity crowdfunding: Novel evidence from the perspective of investors’ preferences

Syed Muhammad Hamza Abid Wasti, Jaleel Ahmed and Mushtaq Hussain Khan

PLOS ONE, 2024, vol. 19, issue 3, 1-16

Abstract: Equity crowdfunding provides entrepreneurs and founders the opportunity to raise funds from a large number of potential investors, using quality signals to influence their investment decisions. Drawing from the lens of signaling theory and the elaboration likelihood model, this study explores the role of successive equity crowdfunding rounds as a quality signal in shaping investors’ preferences in crowdfunded firms and its influence on their investment decisions. Our findings reveal that successive equity crowdfunding rounds serve as quality signals, modeling investors’ preferences and thereby resulting in a high magnitude of success factors. The successive round is a strong quality signal that has a positive and significant impact on investors’ investment decisions in subsequent equity crowdfunding rounds. The increasing preferences of investors due to the successive round augments the magnitude of success factors and helps entrepreneurs in successfully achieving large funding targets, high overfunding, and attracting a large number of investors in subsequent equity crowdfunding campaigns, even with a low level of equity offering.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0297820

DOI: 10.1371/journal.pone.0297820

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