March 1, 2017

Resolving information asymmetry: Signaling, endorsement, and crowdfunding success

This paper draws on information economics to examine when signals and endorsements obtained from multiple information sources enhance or diminish one another’s effects. We propose that signals through startup actions (use of media) and characteristics (crowdfunding experience) can mitigate information asymmetry concerns about project quality and founder credibility, enhancing the project’s likelihood of attaining funding. Further, we posit that while startup-originated signals offset each other’s effects, third party endorsements (sentiment expressed in backer comments) validate and complement startup-originated signals. Empirical analyses based on a comprehensive dataset of crowdfunding projects on the Kickstarter website during 2009-2015 confirm our predictions. [Download]