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The Influence of Fixed and Flexible Funding Mechanisms on Reward-Based Crowdfunding Success

Author

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  • Lenny Phulong Mamaro

    (Department of Finance Risk Management and Banking, University of South Africa (UNISA), P.O. Box 392, Pretoria 0003, South Africa)

  • Athenia Bongani Sibindi

    (Department of Finance Risk Management and Banking, University of South Africa (UNISA), P.O. Box 392, Pretoria 0003, South Africa)

Abstract

This study examined whether fixed or flexible funding mechanisms influence crowdfunding success. Under the fixed funding mechanism, the pledges contributed to the crowdfunding campaign projects are returned to the backers if the project fails, whereas, under the flexible funding mechanism, the project creator can keep all the raised pledges, irrespective of whether the project succeeds or fails. Secondary data consisted of reward-based crowdfunding projects retrieved from The Crowd Data Centre. Logistic regression was employed to respond to research objectives. The results reveal that the fixed funding mechanism increases the probability of success more than flexible funding. Entrepreneur experience, spelling errors, and project description negatively affect crowdfunding success, and backers positively affect crowdfunding success. The findings guide entrepreneurs seeking financing to design and choose an appropriate funding mechanism that effectively reduces the failure rate. Although many entrepreneurs seek funding in the crowdfunding market, relatively little research has been conducted on the influence of flexible or fixed funding mechanisms on crowdfunding success in Africa. This study provides entrepreneurs with appropriate financing strategies that enhance crowdfunding success. The empirical literature indicates that the flexible funding mechanism creates distrust among backers due to unrealistic target amounts.

Suggested Citation

  • Lenny Phulong Mamaro & Athenia Bongani Sibindi, 2024. "The Influence of Fixed and Flexible Funding Mechanisms on Reward-Based Crowdfunding Success," JRFM, MDPI, vol. 17(10), pages 1-18, October.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:10:p:454-:d:1493462
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    References listed on IDEAS

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    1. Demiray, Melek & Burnaz, Sebnem, 2019. "Exploring the impact of brand community identification on Facebook: Firm-directed and self-directed drivers," Journal of Business Research, Elsevier, vol. 96(C), pages 115-124.
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