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Two-Sided Platform Governance: Are Founders Manipulating the Crowd in Crowdfunding?

Author

Listed:
  • Astebro, Thomas B.

    (HEC Paris)

  • Penalva, José

Abstract

The crowd is usually wise but can be subject to manipulation by insiders. We use internal administrative records from a leading European crowdfunding platform to study platform governance on two-sided crowdfunding platforms. Founders and regular investors naturally have different incentives with their investments. Consistent with model predictions, founders appear to try to exploit regular investors' sensitivity to the public history of a campaign by making anonymous self-investments. This could distort regular investors' belief formation. Founders tend to avoid and regular investors typically do not find public self-investments credible. To make crowdfunding even more attractive for early-stage financing, platforms could consider increasing the transparency of large self-investments.

Suggested Citation

  • Astebro, Thomas B. & Penalva, José, 2024. "Two-Sided Platform Governance: Are Founders Manipulating the Crowd in Crowdfunding?," HEC Research Papers Series 1499, HEC Paris.
    • Handle: RePEc:ebg:heccah:1499
    DOI: 10.2139/ssrn.4687869
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    More about this item

    Keywords

    non-price strategies; platform governance; two-sided platforms; wisdom of the crowd; information manipulation;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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