Information Cascades Among Investors in Equity Crowdfunding

Abstract

A number of papers in finance study information cascades among investors, especially in the IPO setting. These studies typically differentiate between institutional vs retail investors, as this is the only information available to potential backers. Life information available in equity crowdfunding platforms includes instead also the names of individual investors, who may disclose further information about themselves by linking their profile to social networks. Using a sample of 111 equity offerings posted in 2014 on Crowdcube, we show that information cascades among individual investors are crucial for the success of crowdfunding campaigns. Public profile investors increase the appeal of the offer already among early investors, who in turn mediate the effect of public profile investors on the success of the campaign.

Keywords: Crowdfunding, Information cascades, Crowdcube, Signaling, Entrepreneurial finance.

JEL Classification: G30