Signaling theory in entrepreneurial fundraising and crowdfunding research

Researchers often employ signaling theory to explain the effect of entrepreneurial communication on fundraising success. This focus on signaling can lead researchers to overlook alternative explanations for why communication affects fundraising, resulting in incorrect conclusions. An empirical test of whether a signaling mechanism is a good explanation for an observed relationship would help remedy such problems. We illustrate this idea by reexamining a relationship that has frequently been attributed to signaling, namely, the positive effect that updates in crowdfunding have on fundraising success. We find no support for a signaling mechanism based on a dataset of 5,908 campaign-day observations nested in 175 Kickstarter campaigns. Instead, an alternative explanation, indicating that updates provide affective stimuli, fits the data better. We provide guidance for empirical substantiations of signaling mechanisms in entrepreneurial fundraising with implications for the discussion on the boundaries of signaling theory.