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Crowdfunding: different types of legitimacy

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  • Wendy D. Chen

    (Texas Tech University)

Abstract

It is well documented that startups struggle to obtain funding. Despite the emergence of online crowdfunding which is a financial tool that allows entrepreneurs to receive funds from a large group of individuals, startups have to gain legitimacy to overcome liability of newness and smallness in pursuit of financial resources. Building on the theory of organizational legitimacy with a focus on four different types of legitimacy, this study creates a unique dataset and investigates the effects of each type of legitimacy on projects’ crowdfunding performance. The findings suggest that various types of legitimacy are critical in crowdfunding efforts to help entrepreneurs obtain higher pledge amounts and stronger crowd support and to reach their initial goal amounts. However, some types of legitimacy are more effective than others in a crowdfunding context. This study not only contributes to the crowdfunding and organizational legitimacy literature but also provides practical strategies for startups to improve their crowdfunding success.

Suggested Citation

  • Wendy D. Chen, 2023. "Crowdfunding: different types of legitimacy," Small Business Economics, Springer, vol. 60(1), pages 245-263, January.
    • Handle: RePEc:kap:sbusec:v:60:y:2023:i:1:d:10.1007_s11187-022-00647-0
    DOI: 10.1007/s11187-022-00647-0
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    More about this item

    Keywords

    Crowdfunding; Legitimacy; Entrepreneurial finance; Startups; Venture performance;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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