Mitigating Information Asymmetry to Achieve Crowdfunding Success: Signaling and Online Communication

Abstract

This paper examines how signals and the herding factor originating from multiple sources complement or substitute for each other’s effects in the crowdfunding context. Drawing on the elaboration likelihood model, we propose that signals from campaigns (videos) and creators (experience) can mitigate information asymmetry concerns about project quality and creator credibility and that creator-originating signals offset the effect of campaign-originating signals on crowdfunding success. Further, we posit that online communication between creators and backers (backer comments and creator replies) complements or substitutes for the effects of signals originating from the campaign or creator. We collected and analyzed objective data on 9,884 crowdfunding projects from a major reward-based crowdfunding platform in China and were able to confirm most of our hypotheses.