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Local preferences and the allocation of attention in equity-based crowdfunding

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  • Marco Bade

    (Technische Universitaet Berlin)

  • Martin Walther

    (Technische Universitaet Berlin)

Abstract

This study examines drivers of investment probability in equity-based crowdfunding using a hand-collected and comprehensive data set from a well-established platform. The analysis confirms several effects that have been reported in the recent literature on other crowdfunding markets. Extending recent research, we study moderators of local preferences of investors. Novel to the literature, we find that (1) local preferences are more pronounced in campaigns of younger ventures, (2) herding-like behaviour is stronger in local campaigns and (3) local investors are more responsive to updates posted by entrepreneurs, compared to non-locals. Our results suggest that investors allocate more attention to campaigns for which they have information advantages, such as local campaigns, due to their limited capacity to process information. Such behaviour may eventually amplify information asymmetry and local preferences. Our findings have practical implications for entrepreneurs, investors and platforms.

Suggested Citation

  • Marco Bade & Martin Walther, 2021. "Local preferences and the allocation of attention in equity-based crowdfunding," Review of Managerial Science, Springer, vol. 15(8), pages 2501-2533, November.
    • Handle: RePEc:spr:rvmgts:v:15:y:2021:i:8:d:10.1007_s11846-020-00429-6
    DOI: 10.1007/s11846-020-00429-6
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    Cited by:

    1. Felix Reichenbach & Martin Walther, 2021. "Signals in equity-based crowdfunding and risk of failure," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-30, December.
    2. Jiang, Cuixia & Zhou, Li & Xu, Qifa & Liu, Yezheng, 2022. "Home bias in reward-based crowdfunding and its impact on financing performance: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 76(C).

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    More about this item

    Keywords

    Individual investor behaviour; Local preferences; Attention allocation; Limited information processing capacity; Equity-based crowdfunding;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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