IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0297820.html
   My bibliography  Save this article

Role of successive round as a quality signal in equity crowdfunding: Novel evidence from the perspective of investors’ preferences

Author

Listed:
  • Syed Muhammad Hamza Abid Wasti
  • Jaleel Ahmed
  • Mushtaq Hussain Khan

Abstract

Equity crowdfunding provides entrepreneurs and founders the opportunity to raise funds from a large number of potential investors, using quality signals to influence their investment decisions. Drawing from the lens of signaling theory and the elaboration likelihood model, this study explores the role of successive equity crowdfunding rounds as a quality signal in shaping investors’ preferences in crowdfunded firms and its influence on their investment decisions. Our findings reveal that successive equity crowdfunding rounds serve as quality signals, modeling investors’ preferences and thereby resulting in a high magnitude of success factors. The successive round is a strong quality signal that has a positive and significant impact on investors’ investment decisions in subsequent equity crowdfunding rounds. The increasing preferences of investors due to the successive round augments the magnitude of success factors and helps entrepreneurs in successfully achieving large funding targets, high overfunding, and attracting a large number of investors in subsequent equity crowdfunding campaigns, even with a low level of equity offering.

Suggested Citation

  • Syed Muhammad Hamza Abid Wasti & Jaleel Ahmed & Mushtaq Hussain Khan, 2024. "Role of successive round as a quality signal in equity crowdfunding: Novel evidence from the perspective of investors’ preferences," PLOS ONE, Public Library of Science, vol. 19(3), pages 1-16, March.
    • Handle: RePEc:plo:pone00:0297820
    DOI: 10.1371/journal.pone.0297820
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0297820
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0297820&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0297820?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Armin Schwienbacher, 2019. "Equity crowdfunding: anything to celebrate?," Venture Capital, Taylor & Francis Journals, vol. 21(1), pages 65-74, January.
    2. Massimo G. Colombo & Chiara Franzoni & Cristina Rossi–Lamastra, 2015. "Internal Social Capital and the Attraction of Early Contributions in Crowdfunding," Entrepreneurship Theory and Practice, , vol. 39(1), pages 75-100, January.
    3. Johannes Wallmeroth, 2019. "Investor behavior in equity crowdfunding," Post-Print hal-02420879, HAL.
    4. Roma, Paolo & Vasi, Maria & Kolympiris, Christos, 2021. "On the signaling effect of reward-based crowdfunding: (When) do later stage venture capitalists rely more on the crowd than their peers?," Research Policy, Elsevier, vol. 50(6).
    5. Thomas Hellmann, 2007. "Entrepreneurs and the Process of Obtaining Resources," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(1), pages 81-109, March.
    6. Will Drover & Matthew S. Wood & Andrew Zacharakis, 2017. "Attributes of Angel and Crowdfunded Investments as Determinants of VC Screening Decisions," Entrepreneurship Theory and Practice, , vol. 41(3), pages 323-347, May.
    7. Jeremy C. Short & David J. Ketchen Jr. & Aaron F. McKenny & Thomas H. Allison & R. Duane Ireland, 2017. "Research on Crowdfunding: Reviewing the (Very Recent) past and Celebrating the Present," Entrepreneurship Theory and Practice, , vol. 41(2), pages 149-160, March.
    8. Ajay Agrawal & Christian Catalini & Avi Goldfarb, 2015. "Crowdfunding: Geography, Social Networks, and the Timing of Investment Decisions," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(2), pages 253-274, June.
    9. Butticè, Vincenzo & Di Pietro, Francesca & Tenca, Francesca, 2020. "Is equity crowdfunding always good? Deal structure and the attraction of venture capital investors," Journal of Corporate Finance, Elsevier, vol. 65(C).
    10. Signori, Andrea & Vismara, Silvio, 2018. "Does success bring success? The post-offering lives of equity-crowdfunded firms," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 575-591.
    11. Jonas Löher & Stefan Schneck & Arndt Werner, 2018. "A research note on entrepreneurs’ financial commitment and crowdfunding success," Venture Capital, Taylor & Francis Journals, vol. 20(3), pages 309-322, July.
    12. Johannes Wallmeroth, 2019. "Investor behavior in equity crowdfunding," Venture Capital, Taylor & Francis Journals, vol. 21(2-3), pages 273-300, July.
    13. Yuho Chung & Yiwei Li & Jianmin Jia, 2021. "Exploring embeddedness, centrality, and social influence on backer behavior: the role of backer networks in crowdfunding," Journal of the Academy of Marketing Science, Springer, vol. 49(5), pages 925-946, September.
    14. Cristina Martínez-Gómez & Francisca Jiménez-Jiménez & M. Virtudes Alba-Fernández, 2020. "Determinants of Overfunding in Equity Crowdfunding: An Empirical Study in the UK and Spain," Sustainability, MDPI, vol. 12(23), pages 1-29, December.
    15. Francesca Di Pietro & Luca Grilli & Francesca Masciarelli, 2023. "Talking about a revolution? Costly and costless signals and the role of innovativeness in equity crowdfunding," Journal of Small Business Management, Taylor & Francis Journals, vol. 61(2), pages 831-862, March.
    16. Norbert Steigenberger & Hendrik Wilhelm, 2018. "Extending Signaling Theory to Rhetorical Signals: Evidence from Crowdfunding," Organization Science, INFORMS, vol. 29(3), pages 529-546, June.
    17. Bi, Sheng & Liu, Zhiying & Usman, Khalid, 2017. "The influence of online information on investing decisions of reward-based crowdfunding," Journal of Business Research, Elsevier, vol. 71(C), pages 10-18.
    18. Meoli, Michele & Vismara, Silvio, 2021. "Information manipulation in equity crowdfunding markets," Journal of Corporate Finance, Elsevier, vol. 67(C).
    19. Cumming, Douglas J. & Johan, Sofia A., 2013. "Venture Capital and Private Equity Contracting," Elsevier Monographs, Elsevier, edition 2, number 9780124095373.
    20. Paolo Roma & Esther Gal-Or & Rachel R. Chen, 2018. "Reward-Based Crowdfunding Campaigns: Informational Value and Access to Venture Capital," Information Systems Research, INFORMS, vol. 29(3), pages 679-697, September.
    21. Roma, Paolo & Messeni Petruzzelli, Antonio & Perrone, Giovanni, 2017. "From the crowd to the market: The role of reward-based crowdfunding performance in attracting professional investors," Research Policy, Elsevier, vol. 46(9), pages 1606-1628.
    22. Kourosh Shafi, 2021. "Investors’ evaluation criteria in equity crowdfunding," Small Business Economics, Springer, vol. 56(1), pages 3-37, January.
    23. Johannes Wallmeroth, 2019. "Investor behavior in equity crowdfunding," Post-Print hal-02312242, HAL.
    24. Diandian Xiang & Leinan Zhang & Qiuyan Tao & Yonggui Wang & Shuang Ma, 2019. "Informational or emotional appeals in crowdfunding message strategy: an empirical investigation of backers’ support decisions," Journal of the Academy of Marketing Science, Springer, vol. 47(6), pages 1046-1063, November.
    25. Steven C. Michael, 2009. "Entrepreneurial signaling to attract resources: the case of franchising," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(6), pages 405-422.
    26. Gary Dushnitsky & Zur Shapira, 2010. "Entrepreneurial finance meets organizational reality: comparing investment practices and performance of corporate and independent venture capitalists," Strategic Management Journal, Wiley Blackwell, vol. 31(9), pages 990-1017, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yasar, Burze & Sevilay Yılmaz, Işıl & Hatipoğlu, Nurullah & Salih, Aslıhan, 2022. "Stretching the success in reward-based crowdfunding," Journal of Business Research, Elsevier, vol. 152(C), pages 205-220.
    2. Clarissa E. Weber & Norbert Steigenberger & Hendrik Wilhelm, 2023. "After successful fundraising: how overfunding and category spanning affect the release and audience-perceived quality of crowdfunded products," Small Business Economics, Springer, vol. 61(3), pages 1009-1026, October.
    3. Francesca Pietro, 2021. "The rationale for listing on equity crowdfunding: actual and expected benefits for companies," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(4), pages 527-549, December.
    4. Messeni Petruzzelli, Antonio & Natalicchio, Angelo & Panniello, Umberto & Roma, Paolo, 2019. "Understanding the crowdfunding phenomenon and its implications for sustainability," Technological Forecasting and Social Change, Elsevier, vol. 141(C), pages 138-148.
    5. Yuji Honjo & Koki Kurihara, 2024. "Target for campaign success: an empirical analysis of equity crowdfunding in Japan," The Journal of Technology Transfer, Springer, vol. 49(3), pages 926-958, June.
    6. Mataigne, Virginie & Meoli, Michele & Vanacker, Tom & Vismara, Silvio, 2025. "False signaling by platform team members and post-campaign venture outcomes: Evidence from an equity crowdfunding platform," Journal of Business Venturing, Elsevier, vol. 40(1).
    7. Butticè, Vincenzo & Di Pietro, Francesca & Tenca, Francesca, 2020. "Is equity crowdfunding always good? Deal structure and the attraction of venture capital investors," Journal of Corporate Finance, Elsevier, vol. 65(C).
    8. Sewaid, Ahmed & Garcia-Cestona, Miguel & Silaghi, Florina, 2021. "Resolving information asymmetries in financing new product development: The case of reward-based crowdfunding," Research Policy, Elsevier, vol. 50(10).
    9. Maximilian Goethner & Sebastian Luettig & Tobias Regner, 2021. "Crowdinvesting in entrepreneurial projects: disentangling patterns of investor behavior," Small Business Economics, Springer, vol. 57(2), pages 905-926, August.
    10. Koki KURIHARA & Yuji HONJO, 2022. "Determinants of Campaign Success: Empirical evidence from equity crowdfunding in Japan," Discussion papers 22057, Research Institute of Economy, Trade and Industry (RIETI).
    11. Lars Hornuf & Johannes Voshaar, 2024. "What Is an Effective Signal in Crowdfunding? Evidence from Expert Researchers and a Meta-Study," CESifo Working Paper Series 11501, CESifo.
    12. Mochkabadi, Kazem & Kleinert, Simon & Urbig, Diemo & Volkmann, Christine, 2024. "From distinctiveness to optimal distinctiveness: External endorsements, innovativeness and new venture funding," Journal of Business Venturing, Elsevier, vol. 39(1).
    13. Camilla Civardi & Andrea Moro & Joakim Winborg, 2024. "“All that glitters is not gold!”: The (Unexplored) Determinants of Equity Crowdfunding," Small Business Economics, Springer, vol. 63(1), pages 299-324, June.
    14. Tajvarpour, Mohammad Hossein & Pujari, Devashish, 2022. "The influence of narrative description on the success of crowdfunding campaigns: The moderating role of quality signals," Journal of Business Research, Elsevier, vol. 149(C), pages 123-138.
    15. Roma, Paolo & Vasi, Maria & Kolympiris, Christos, 2021. "On the signaling effect of reward-based crowdfunding: (When) do later stage venture capitalists rely more on the crowd than their peers?," Research Policy, Elsevier, vol. 50(6).
    16. Lukkarinen, Anna & Schwienbacher, Armin, 2023. "Secondary market listings in equity crowdfunding: The missing link?," Research Policy, Elsevier, vol. 52(1).
    17. Junjuan Du, 2024. "How backers’ behavior affects financing performance in agri-food reward-based crowdfunding: The moderating mechanism of initiator characteristics and project attributes," PLOS ONE, Public Library of Science, vol. 19(7), pages 1-23, July.
    18. Goethner, Maximilian & Hornuf, Lars & Regner, Tobias, 2021. "Protecting investors in equity crowdfunding: An empirical analysis of the small investor protection act," Technological Forecasting and Social Change, Elsevier, vol. 162(C).
    19. Tuo Gladys & Yi Feng & Sarpong Solomon & Wang Wenxin, 2020. "The Second Round Resource Acquisition of Entrepreneurial Crowdfunded Ventures: The Relevance of Campaign and Project Implementation Performance Outcomes," Entrepreneurship Research Journal, De Gruyter, vol. 10(3), pages 1-21, July.
    20. Coakley, Jerry & Lazos, Aristogenis & Liñares-Zegarra, José M., 2022. "Seasoned equity crowdfunded offerings," Journal of Corporate Finance, Elsevier, vol. 77(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:plo:pone00:0297820. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.