Signaling quality to bridge the ethnic and gender gap: evidence for ethnic women entrepreneurs

Crowdfunding offers a promising avenue to democratize finance, yet persistent biases continue to constrain minority entrepreneurs. This study examines ethnic women entrepreneurs, a group considered underdogs because overlapping gender and ethnic disadvantages create distinct legitimacy deficits in fundraising. Using a novel dataset of 18,123 U.S. Kickstarter campaigns, we analyze how underdog status shapes the effectiveness of internal signals (e.g., education, campaign commitment) and external signals (e.g., Staff Pick endorsements). We address selection bias with a Heckman two-stage procedure and entropy balancing. Results show ethnic women entrepreneurs face disadvantages in attracting local backers, while external signals strongly enhance credibility and fundraising outcomes. Internal signals are more effective with foreign backers, highlighting that the value of signals depends on both entrepreneur identity and backer audience. Signaling thus functions as both an economic and symbolic tool, enabling underdogs to challenge stereotypes and reclaim legitimacy. Ethnic women entrepreneurs can strategically leverage transnational networks to overcome local disadvantages. By integrating insights from signaling theory, underdog strategy, and ethnic entrepreneurship, this study advances understanding of how marginalized entrepreneurs navigate structural barriers in digital finance and offers guidance for more inclusive crowdfunding models.