Publication Date

4-1-2022

Document Type

Article

Publication Title

Small Business Economics

Volume

58

Issue

4

DOI

10.1007/s11187-021-00473-w

First Page

1761

Last Page

1781

Abstract

As a digital financial innovation, equity crowdfunding (ECF) allows investors to exploit the complementarity of information provision and network effects in a reduced transaction cost environment. We build on the underlying distinction between soft and hard information and show that ECF platforms create an environment of greater information pooling that benefits from network externalities. We test our hypotheses using a unique proprietary dataset and find that soft information has a greater impact than hard on the likelihood that a financing pitch will be successful. Moreover, the effects of soft information are amplified by the size of the investor network on the platform and network size also positively moderates the effect of information on the amount invested during each pitch. We conclude that ECF platforms can successfully exploit low transaction costs of the digital environment and bring network externalities to bear on investor decisions. Taken together that these increase the supply of funds to entrepreneurs.

Funding Sponsor

Strategic Management Society

Keywords

Entrepreneurial finance, Equity crowdfunding, Network externalities, Platforms, Soft information

Creative Commons License

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 License.

Department

Management

Download

Share

COinS