Resolving Information Asymmetry: Signaling, Endorsement, and Crowdfunding Success

Entrepreneurship Theory and Practice, Forthcoming

43 Pages Posted: 8 Nov 2016

See all articles by Christopher Courtney

Christopher Courtney

SUNY at Buffalo - School of Management

Supradeep Dutta

SUNY at Buffalo - School of Management

Yong Li

University of Nevada Las Vegas

Date Written: November 7, 2016

Abstract

This paper draws on information economics to examine when signals and endorsements obtained from multiple information sources enhance or diminish one another’s effects. We propose that signals through startup actions (use of media) and characteristics (crowdfunding experience) can mitigate information asymmetry concerns about project quality and founder credibility, enhancing the project’s likelihood of attaining funding. Further, we posit that while startup-originated signals offset each other’s effects, third party endorsements (sentiment expressed in backer comments) validate and complement startup-originated signals. Empirical analyses based on a comprehensive dataset of crowdfunding projects on the Kickstarter website during 2009-2015 confirm our predictions.

Keywords: Crowdfunding, Signaling, Endorsements, Media, Experience, Sentiment

Suggested Citation

Courtney, Christopher and Dutta, Supradeep and Li, Yong, Resolving Information Asymmetry: Signaling, Endorsement, and Crowdfunding Success (November 7, 2016). Entrepreneurship Theory and Practice, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2866139

Christopher Courtney

SUNY at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

Supradeep Dutta

SUNY at Buffalo - School of Management ( email )

Jacobs Management Center
Buffalo, NY 14222
United States

Yong Li (Contact Author)

University of Nevada Las Vegas ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States

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