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Does the Role of Media and Founder’s Past Success Mitigate the Problem of Information Asymmetry? Evidence from a UK Crowdfunding Platform

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  • Sardar Muhammad Usman

    (School of Management, Zhejiang University, Hangzhou 310058, China
    Department of Management Sciences, COMSATS University Islamabad (CUI), Islamabad 44000, Pakistan)

  • Farasat Ali Shah Bukhari

    (School of Management, Zhejiang University, Hangzhou 310058, China
    Department of Management Sciences, COMSATS University Islamabad (CUI), Islamabad 44000, Pakistan)

  • Muhammad Usman

    (Division of Computational Mathematics and Engineering, Institute for Computational Science, Ton Duc Thang University, Ho Chi Minh City 700000, Vietnam
    Faculty of Finance and Banking, Ton Duc Thang University, Ho Chi Minh City 700000, Vietnam)

  • Daniel Badulescu

    (Department of Economics and Business, Faculty of Economic Sciences, University of Oradea, 410087 Oradea, Romania)

  • Muhammad Safdar Sial

    (Department of Management Sciences, COMSATS University Islamabad (CUI), Islamabad 44000, Pakistan)

Abstract

Crowdfunding is an innovative concept for a new start-ups seeking financial support for their distinctive and novel projects. Despite their popularity, crowdfunding platforms face several key challenges amongst which is information asymmetry between entrepreneurs and influential backers, where credible information must be disclosed by the founders (entrepreneurs) to the potential “backers” in order to assess the potentiality of the project. In order to fill this gap, we developed and tested a model that examines the signaling interaction between the founder and a potential backer through media and the founders’ past success. This model also examines how these two signals (i.e., media and past success) interact so as to mitigate the problem of information asymmetry and to make the project successful. A total of 14,887 projects were extracted from a reward-based platform named Crowdfunder. The data was analyzed by performing Tobit and logistic regression and the model was validated by using the robustness technique. The results strongly mitigate the problem of information asymmetry which improves the rate of success in projects floated on the Crowdfunder platform. We believe that our study will significantly contribute to this nascent yet developing research area by probing for information mechanisms to succeed in crowdfunding.

Suggested Citation

  • Sardar Muhammad Usman & Farasat Ali Shah Bukhari & Muhammad Usman & Daniel Badulescu & Muhammad Safdar Sial, 2019. "Does the Role of Media and Founder’s Past Success Mitigate the Problem of Information Asymmetry? Evidence from a UK Crowdfunding Platform," Sustainability, MDPI, vol. 11(3), pages 1-24, January.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:3:p:692-:d:201488
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    3. Sardar Muhammad Usman & Farasat Ali Shah Bukhari & Huiwei You & Daniel Badulescu & Darie Gavrilut, 2020. "The Effect and Impact of Signals on Investing Decisions in Reward-Based Crowdfunding: A Comparative Study of China and the United Kingdom," JRFM, MDPI, vol. 13(12), pages 1-20, December.
    4. Agnieszka Szewczyk & Zbigniew Stempnakowski, 2021. "Social Energy as the Driving Force behind Crowdfunding—Analysis and Classification of Selected Attributes," Energies, MDPI, vol. 14(19), pages 1-32, September.
    5. Yu, Jie & Xiao, Shengsheng, 2023. "Project certification and screening in the reward-based crowdfunding market," Journal of Business Research, Elsevier, vol. 165(C).
    6. Alexander Fox & Jana Neuland, 2020. "Limited Availability in Crowdfunding Projects – Guarantee for Profitability," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 8(4), pages 246-260.
    7. Regner, Tobias & Crosetto, Paolo, 2021. "The long-term effects of self pledging in reward crowdfunding," Technological Forecasting and Social Change, Elsevier, vol. 165(C).
    8. Nguyen, Minh-Hoang & Huyen, Nguyen Thanh Thanh & Pham, Thanh-Hang & Yen, Nguyen Thi Quynh & Vuong, Quan-Hoang, 2020. "On the 50-year research landscape of entrepreneurial finance: A sign of Western ideological homogeneity?," OSF Preprints qf62s, Center for Open Science.
    9. Xiaobei Liang & Xiaojuan Hu & Jiang Jiang, 2020. "Research on the Effects of Information Description on Crowdfunding Success within a Sustainable Economy—The Perspective of Information Communication," Sustainability, MDPI, vol. 12(2), pages 1-36, January.
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