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Linguistic information distortion on investment decision-making in the crowdfunding market

Wei Wang (Information Management Department, College of Business Administration, Huaqiao University, Quanzhou, China)
Yuting Xu (College of Business Administration, Huaqiao University, Quanzhou, China)
Yenchun Jim Wu (College of Management, National Taipei University of Education, Taipei, Taiwan) (Graduate Institute of Global Business and Strategy, National Taiwan Normal University, Taipei, Taiwan)
Mark Goh (NUS Business School and TLI-AP, National University of Singapore Business School, Singapore, Singapore)

Management Decision

ISSN: 0025-1747

Article publication date: 29 April 2021

Issue publication date: 22 February 2022

642

Abstract

Purpose

Information distortion affects the perception of quality, which, in turn, influences investment decisions and determines the pledge results of fundraising. This study combines signalling theory with persuasion theory to empirically study the effects of linguistic information distortion from fraudulent cues on a crowdfunding campaign's fundraising outcomes using text analytics, with implications for entrepreneurs, platforms and investors.

Design/methodology/approach

This study empirically analyzes 328,974 crowdfunding projects from the Kickstarter platform. Information distortion is detected using four indicators, based on text mining analytics. An econometric model is built to estimate the impact of information distortion, while the predictive power of the information distortion is detected through machine learning.

Findings

The results inform that distortion in the blurb, detailed description and reward statement dampen a campaign's success, but embellishing the entrepreneur's biography enhances the success of financing. Furthermore, information distortion exhibits a significant inverted U-shaped influence. The effect of the interaction terms suggests that campaigns with high pledge goals are more sensitive to information distortion, and that native-speaking entrepreneurs are adept at applying linguistic skills to promote the campaign.

Originality/value

This study provides a linguistic method to detect the influence of information distortion on crowdfunding campaigns. Further, the study offers some practical suggestions for entrepreneurs on how to generate attractive narratives, and contributes to the investor's decision-making and informs the platform's promotion strategy.

Keywords

Acknowledgements

This work is partially supported by the National Nature Science Foundation of China Grant (72072062, 71601082), Natural Science Foundation of Fujian Province (2020J01782) and Ministry of Science & Technology, Taiwan (MOST 109-2511-H-003 -049 -MY3)

Citation

Wang, W., Xu, Y., Wu, Y.J. and Goh, M. (2022), "Linguistic information distortion on investment decision-making in the crowdfunding market", Management Decision, Vol. 60 No. 3, pp. 648-672. https://doi.org/10.1108/MD-09-2020-1203

Publisher

:

Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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