Abstract
Crowdfunding can suffer from information asymmetry, leaving some investors disappointed with low-quality projects, whereas other high-quality projects remain unfunded. We show that refund bonuses, which provide investors a payment if a fundraising campaign is unsuccessful, can signal project quality and help overcome the market failure in crowdfunding. Because strong projects have a lower risk of bonus payout, entrepreneurs with strong projects are more likely to offer bonuses. This signals high quality to investors, and due to their updated beliefs, this drives investment toward such projects. An experiment provides supporting empirical evidence for the benefits of this signaling solution to the problems of information asymmetry in crowdfunding.
| Original language | English |
|---|---|
| Pages (from-to) | 5933-5947 |
| Number of pages | 15 |
| Journal | Management Science |
| Volume | 71 |
| Issue number | 7 |
| Early online date | 18 Oct 2024 |
| DOIs | |
| Publication status | Published - 31 Jul 2025 |
Bibliographical note
Publisher Copyright:Copyright: © 2024 INFORMS.
Data Availability Statement
The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.03923.Funding
This work was supported by Schmidt Sciences. The authors thank seminar and conference audiences at Indiana University, Loyola Marymount University, University of Oregon, IMEBESS (Lisbon), SAET (Paris), and ANZWEE (Melbourne) for valuable feedback. Xinxin Lyu provided valuable oTree programming for the experiment software.
| Funders | Funder number |
|---|---|
| University of Oregon | |
| Indiana University | |
| Schmidt Sciences | |
| Loyola Marymount University | |
| ANZWEE | |
| SAET |
Keywords
- adverse selection
- crowdfunding
- experiments
- signaling
- threshold implementation
ASJC Scopus subject areas
- Strategy and Management
- Management Science and Operations Research