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Crowdfunding, cascades and informed investors

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  • Parker, Simon C.

Abstract

Do higher proportions of (a) informed investors and (b) high-quality projects increase the number of good projects that are ultimately financed via crowdfunding? A simple model and simulation reveal the answers to both questions to be: ‘not necessarily’.

Suggested Citation

  • Parker, Simon C., 2014. "Crowdfunding, cascades and informed investors," Economics Letters, Elsevier, vol. 125(3), pages 432-435.
    • Handle: RePEc:eee:ecolet:v:125:y:2014:i:3:p:432-435
    DOI: 10.1016/j.econlet.2014.10.001
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    References listed on IDEAS

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    1. Ajay Agrawal & Christian Catalini & Avi Goldfarb, 2014. "Some Simple Economics of Crowdfunding," Innovation Policy and the Economy, University of Chicago Press, vol. 14(1), pages 63-97.
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    4. Ajay K. Agrawal & Christian Catalini & Avi Goldfarb, 2011. "The Geography of Crowdfunding," NBER Working Papers 16820, National Bureau of Economic Research, Inc.
    5. Welch, Ivo, 1992. "Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
    6. Juanjuan Zhang & Peng Liu, 2012. "Rational Herding in Microloan Markets," Management Science, INFORMS, vol. 58(5), pages 892-912, May.
    7. Mollick, Ethan, 2014. "The dynamics of crowdfunding: An exploratory study," Journal of Business Venturing, Elsevier, vol. 29(1), pages 1-16.
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    Cited by:

    1. Cinta Borrero-Domínguez & Encarnación Cordón-Lagares & Rocío Hernández-Garrido, 2020. "Sustainability and Real Estate Crowdfunding: Success Factors," Sustainability, MDPI, vol. 12(12), pages 1-13, June.
    2. Constantin Anghelache & Radu Titus MARINESCU & Bodo Gyorgy & Ihab Jweida S J JWEIDA & Andreea-Ioana MARINESCU, 2016. "The Role of Information to Market Study," Romanian Statistical Review Supplement, Romanian Statistical Review, vol. 64(9), pages 100-112, September.
    3. Jesús Mauricio Flórez-Parra & Gracia Rubio Martín & Carmen Rapallo Serrano, 2020. "Corporate Social Responsibility and Crowdfunding: The Experience of the Colectual Platform in Empowering Economic and Sustainable Projects," Sustainability, MDPI, vol. 12(13), pages 1-20, June.
    4. Ivelin Elenchev & Aleksandar Vasilev, 2019. "Forecasting the Success Rate of Reward Based Crowdfunding Projects," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 17(1 (Spring), pages 51-77.
    5. Stéphane Onnee & Sophie Renault, 2015. "Crowdfunding: principles, trends and issues," Post-Print hal-01712731, HAL.
    6. Boudreau, Kevin J. & Jeppesen, Lars Bo & Reichstein, Toke & Rullani, Francesco, 2021. "Crowdfunding as Donations to Entrepreneurial Firms," Research Policy, Elsevier, vol. 50(7).
    7. Xin Tang & Haibing Lu & Wei Huang & Shulin Liu, 2023. "Investment decisions and pricing strategies of crowdfunding players: In a two-sided crowdfunding market," Electronic Commerce Research, Springer, vol. 23(2), pages 1209-1240, June.
    8. Sha Zhou & Tao Ma & Zhengchi Liu, 2021. "Crowdfunding as a screener for collective investment," Electronic Commerce Research, Springer, vol. 21(1), pages 195-221, March.
    9. Tanja Jovanović, 2019. "Crowdfunding: What Do We Know So Far?," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 16(01), pages 1-25, February.
    10. Yaokuang Li & Li Ling & Daru Zhang & Juan Wu, 2021. "Lead investors and information disclosure: A test of signaling theory by fuzzy‐set qualitative comparative analysis approach," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(4), pages 836-849, June.
    11. Salahaldin, Linda & Angerer, Martin & Kraus, Sascha & Trabelsi, Donia, 2019. "A duration-based model of crowdfunding project choice," Finance Research Letters, Elsevier, vol. 29(C), pages 404-410.
    12. Eric Tassel, 2023. "Crowdfunding investors, intermediaries and risky entrepreneurs," Small Business Economics, Springer, vol. 60(3), pages 1033-1050, March.
    13. Silvio Vismara, 2018. "Information Cascades among Investors in Equity Crowdfunding," Entrepreneurship Theory and Practice, , vol. 42(3), pages 467-497, May.
    14. Christian Masiak & Joern H. Block & Tobias Masiak & Matthias Neuenkirch & Katja N. Pielen, 2020. "Initial coin offerings (ICOs): market cycles and relationship with bitcoin and ether," Small Business Economics, Springer, vol. 55(4), pages 1113-1130, December.
    15. Janice A. Hauge & Stanley Chimahusky, 2016. "Are Promises Meaningless In An Uncertain Crowdfunding Environment?," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1621-1630, July.
    16. Crosetto, Paolo & Regner, Tobias, 2018. "It's never too late: Funding dynamics and self pledges in reward-based crowdfunding," Research Policy, Elsevier, vol. 47(8), pages 1463-1477.
    17. Ferretti, Riccardo & Venturelli, Valeria & Pedrazzoli, Alessia, 2021. "Do multiple competing offerings on a crowdfunding platform influence investment behavior?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    18. Viotto da Cruz, Jordana, 2018. "Beyond financing: crowdfunding as an informational mechanism," Journal of Business Venturing, Elsevier, vol. 33(3), pages 371-393.
    19. Saul Estrin & Susanna Khavul & Mike Wright, 2022. "Soft and hard information in equity crowdfunding: network effects in the digitalization of entrepreneurial finance," Small Business Economics, Springer, vol. 58(4), pages 1761-1781, April.
    20. Francisca Jiménez-Jiménez & Maria Virtudes Alba-Fernández & Cristina Martínez-Gómez, 2021. "Attracting the Right Crowd under Asymmetric Information: A Game Theory Application to Rewards-Based Crowdfunding," Mathematics, MDPI, vol. 9(21), pages 1-23, October.
    21. Messeni Petruzzelli, Antonio & Natalicchio, Angelo & Panniello, Umberto & Roma, Paolo, 2019. "Understanding the crowdfunding phenomenon and its implications for sustainability," Technological Forecasting and Social Change, Elsevier, vol. 141(C), pages 138-148.
    22. Daniel A Brent & Nathan W Chan, 2019. "Local Public Goods and the Crowding-out Hypothesis: Evidence from Civic Crowdfunding," Economics Bulletin, AccessEcon, vol. 39(3), pages 2142-2154.
    23. Borello, Giuliana & De Crescenzo, Veronica & Pichler, Flavio, 2019. "Factors for success in European crowdinvesting," Journal of Economics and Business, Elsevier, vol. 106(C).

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    More about this item

    Keywords

    Crowdfunding; New ventures; Entrepreneurial finance; Startups;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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