Signaling to Overcome Inefficiencies in Crowdfunding Markets
This chapter positions the study of signals in crowdfunding within the broader literature on signaling in entrepreneurial finance. I deliver a theoretical discussion and definition of signals in crowdfunding, including examples of penalty and handicap signals, differentiating them from passive characteristics and cheap talk. I propose a taxonomy of signals that matches the senders—namely, such organizations as firms and nongovernmental organizations, and individuals, including both proponents and fellow crowd-funders—and receivers, such as backers, lenders, and investors. Existing studies are classified in this taxonomy based on the definitions of reward- and donation-based crowdfunding, crowd-investing, and crowd-lending. I conclude by identifying future research directions and calling for studies on post-signal performance.
- Agrawal, Ajay K., Christian Catalini, and Avi Goldfarb. 2011. The Geography of Crowdfunding. National Bureau of Economic Research. http://www.nber.org/papers/w16820. Accessed 20 Feb 2017.
- Ahlers, Gerrit K., Douglas Cumming, Christina Günther, and Denis Schweizer. 2015. Signaling in Equity Crowdfunding. Entrepreneurship: Theory and Practice 39: 955–980.Google Scholar
- Beatty, Randolph P. 1989. Auditor Reputation and the Pricing of Initial Public Offerings. Accounting Review 64: 693–709.Google Scholar
- Block, Jörn, Lars Hornuf, and Alexandra Moritz. 2017. Which Updates During an Equity Crowdfunding Campaign Increase Crowd Participation? Small Business Economics. Forthcoming.Google Scholar
- Cassia, Lucio, and Silvio Vismara. 2009. Suppliers as Fund Suppliers: Firms’ Trade Credit and the Local Level of Development of the Banking System in Europe. Investment Management and Financial Innovations 6: 46–58.Google Scholar
- Colombo, Massimo G., Michele Meoli, and Silvio Vismara. 2016. Signalling in Science-Based IPOs: The Combined Effect of Affiliation with Prestigious Universities, Underwriters, and Venture Capitalists. Social Science Research Network. https://ssrn.com/abstract=2801556. Accessed 20 Feb 2017.
- Collier, Benjamin C., and Robert Hampshire. 2010. Sending Mixed Signals: Multilevel Reputation Effects in Peer-To-Peer Lending Markets. Paper presented at Proceedings of the 2010 ACM Conference on Computer Supported Cooperative Work (197–206), Savannah, USA.Google Scholar
- Cumming, Douglas J., Lars Hornuf, Moein Karami, and Denis Schweizer. 2016a. Disentangling Crowdfunding from Fraudfunding. Max Planck Institute for Innovation and Competition Research Paper, No. 16-09. https://ssrn.com/abstract=2828919. Accessed 28 Feb 2017.
- Cumming, Douglas J., Michelle Meoli, and Silvio Vismara. 2016b. Investors’ Choice Between Cash and Voting Rights: Evidence from Dual-Class Equity Crowdfunding. Working Paper, University of Bergamo.Google Scholar
- Cumming, Douglas J., Alice Rossi, and Silvio Vismara. 2017. What Do Crowdfunding Platforms Do? A Comparison Between Investment-Based Platforms in Europe. Working Paper, University of Bergamo.Google Scholar
- Cumming, Douglas J., and Silvio Vismara. 2016. A Research Journey Into Entrepreneurial Finance. In The Routledge Companion to makers of modern entrepreneurship, ed. D.B. Audretsch and E.E. Lehmann, 64–73. London, UK: Routledge.Google Scholar
- Cumming, Douglas J., and Yelin Zhang. 2016. Are Crowdfunding Platforms Active and Effective Intermediaries? Social Science Research Network. https://ssrn.com/abstract=2882026. Accessed 20 Feb 2017.
- Hanssens, Jürgen, Marc Deloof, and Tom Vanacker. 2015. Underexplored Issues in Entrepreneurial Finance. In The Concise Guide to Entrepreneurship, Technology and Innovation, ed. D.B. Audretsch, C.S. Hayter, and A.N. Link, 219–222. New York, NY: Edward Elgar.Google Scholar
- Hornuf, Lars, and Matthias Schmitt. 2016. Success and Failure in Equity Crowdfunding. CESifo DICE Report 14: 16–22.Google Scholar
- Hubbard, R. Glenn. 1998. Capital Market Imperfections and Investment. Journal of Economic Literature 36: 193–225.Google Scholar
- Khurshed, Arif, Stefano Paleari, and Silvio Vismara. 2003. The Operating Performance of Initial Public Offerings: The UK Experience. Social Science Research Network. https://ssrn.com/abstract=439240. Accessed 20 Feb 2017.
- Kuppuswamy, Venkat, and Barry L. Bayus. 2014. Crowdfunding Creative Ideas: The Dynamics of Project Backers in Kickstarter. Social Science Research Network. https://ssrn.com/abstract=2234765. Accessed 20 Feb 2017.
- Mohammadi, Ali, and Kourosh Shafi. 2017. Gender Differences in the Contribution Patterns of Equity-Crowdfunding Investors. Small Business Economics. Forthcoming.Google Scholar
- Mollick, Ethan, and Venkat Kuppuswamy. 2014. After the Campaign: Outcomes of Crowdfunding. Social Science Research Network. https://ssrn.com/abstract=2376997. Accessed 20 Feb 2017.
- Ralcheva, Aleksandrina, and Peter Roosenboom. 2016. On the Road to Success in Equity Crowdfunding. Social Science Research Network. https://ssrn.com/abstract=2727742. Accessed 20 Feb 2017.
- Signori, Andrea, and Silvio Vismara. 2016. Returns on Investments in Equity Crowdfunding. Social Science Research Network. https://ssrn.com/abstract=2765488. Accessed 20 Feb 2017.
- Stiglitz, Joseph E., and Andrew Weiss. 1981. Credit Rationing in Markets with Imperfect Information. American Economic Review 71: 393–410.Google Scholar
- ———. 2017. Information Cascades Among Investors in Equity Crowdfunding. Entrepreneurship Theory and Practice. Forthcoming.Google Scholar
- Vismara, Silvio, Davide Benaroio, and Federica Carne. 2017. Gender in Entrepreneurial Finance: Matching Investors and Entrepreneurs in Equity Crowdfunding. In Gender and Entrepreneurial Activity, ed. Albert Link. Cheltenham: Edward Elgar.Google Scholar
- Weick, Karl E. 1995. Sensemaking in Organizations. Thousand Oaks, CA: SAGE Publications.Google Scholar
- Williamson, Oliver E. 1985. Economic Institutions of Capitalism. New York: Free Press.Google Scholar