Overfunding and Signaling Effects of Herding Behavior in Crowdfunding

29 Pages Posted: 12 Dec 2019

Date Written: 2019

Abstract

The paper employs a dynamic market-wide herding behavior measure of 117,166 lending-based campaigns in 119 online platforms in 37 countries that explores whether lenders follow each other in the whole crowdfunding market, within the groups of top platforms, within the specific category or platform, and within the specific category in the specific platform. We show that herding behavior plays an important signaling role in reducing opportunity costs if the auction does not receive enough monetary bids. Additionally, our threshold models identify significant herding behavior after funding goals are raised and highlight the controversial effects of signaling mechanisms on adverse selection in crowdfunding markets.

Keywords: asymmetric information, crowdfunding, herding behavior, overfunding, peer-to-peer lending, signaling

JEL Classification: C550, D260, G210

Suggested Citation

Kapounek, Svatopluk and Kučerová, Zuzana, Overfunding and Signaling Effects of Herding Behavior in Crowdfunding (2019). CESifo Working Paper No. 7973. Available at SSRN: https://ssrn.com/abstract=3502020

Svatopluk Kapounek (Contact Author)

Mendel University in Brno ( email )

Zemedelska 1
Brno, South Moravia 61200
Czech Republic

Zuzana Kučerová

Mendel University ( email )

Zemedelska 1
Brno, South Moravia 61200
Czech Republic

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