With a Little Help from Friends: Strategic Financing and the Crowd

Sudipto Dasgupta, Tingting Fan, Yiwei Li and Yizhou Xiao

No 15058, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Based on a crowdfunding platform and social media account login data, we study the information role of financing from connected individuals (e.g., family and friends) of entrepreneurs. While financing from connected individuals is generally considered as a signal of high-quality projects, our results suggest that this might be a signal of funding performance manipulation. Entrepreneurs with moderate early funding performance strategically solicit investments from friends to encourage naïve investors to herd. Sophisticated investors discern manipulation and are less likely to invest. Manipulation exists even when sophisticated investors have significant market power and projects with manipulation deliver poorer funding performance.

Date: 2020-07
New Economics Papers: this item is included in nep-ent, nep-pay and nep-soc
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP15058 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:15058

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP15058

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().