Which Updates During an Equity Crowdfunding Campaign Increase Crowd Participation?

Research Papers in Economics No. 6/16

39 Pages Posted: 21 May 2016 Last revised: 31 Mar 2017

See all articles by Jorn H. Block

Jorn H. Block

University of Trier - Faculty of Management; Erasmus University Rotterdam (EUR) - Institute of Management (ERIM)

Lars Hornuf

University of Bremen - Faculty of Business Studies and Economics; Max Planck Institute for Innovation and Competition; CESifo (Center for Economic Studies and Ifo Institute)

Alexandra Moritz

University of Trier - Faculty of Management

Date Written: March 30, 2017

Abstract

Start-ups often post updates during equity crowdfunding campaigns. However, little is known about the effects of such updates on crowdfunding participation. We investigate this question by using hand-collected data from 71 funding campaigns and 39,399 investment decisions on two German equity crowdfunding portals. Using a combination of different empirical research techniques, we find that posting an update has a significant positive effect on the number of investments made by the crowd and the investment amount collected by the start-up. This effect does not occur immediately in its entirety; rather, it lags the update by a few days. Furthermore, the effect of updates loses statistical significance with the number of updates posted during a campaign. We also find that an easier language used in updates increases crowd participation whereas the length of updates has no effects. With respect to the update’s content, we find that the positive effect can be attributed to updates about new developments of the start-up such as new funding, business developments, and cooperation projects. Updates on the start-up team, business model, product developments, and promotional campaigns do not have meaningful effects. Our paper contributes to the literature on the effects of signaling and information disclosure on equity crowdfunding participation. Furthermore, our results have practical implications for start-ups and their investor communication during equity crowdfunding campaigns.

Keywords: equity crowdfunding, crowdinvesting, updates, information disclosure, investment dynamics, entrepreneurial finance

JEL Classification: G11, G20, K22, M13

Suggested Citation

Block, Jorn Hendrich and Hornuf, Lars and Moritz, Alexandra, Which Updates During an Equity Crowdfunding Campaign Increase Crowd Participation? (March 30, 2017). Research Papers in Economics No. 6/16. Available at SSRN: https://ssrn.com/abstract=2781715 or http://dx.doi.org/10.2139/ssrn.2781715

Jorn Hendrich Block

University of Trier - Faculty of Management ( email )

D-54296
Germany

Erasmus University Rotterdam (EUR) - Institute of Management (ERIM) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Lars Hornuf (Contact Author)

University of Bremen - Faculty of Business Studies and Economics ( email )

Bremen, D-28359
Germany
+49 89 20348619 (Phone)

HOME PAGE: http://www.hornuf.com

Max Planck Institute for Innovation and Competition ( email )

Marstallplatz 1
Munich, Bayern 80539
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Alexandra Moritz

University of Trier - Faculty of Management ( email )

Germany

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