Rational herding: evidence from equity crowdfunding

Abstract

Purpose

This study explores whether herd behavior exists for equity crowdfunding investors in China and whether this herding is rational.

Design/methodology/approach

Based on signaling theory and social learning theory, two hypotheses were proposed. This study employed two approaches to collect data. First, this paper analyzed 3,041 investments on an equity crowdfunding platform in China using Python programming and built a panel data model. Second, based on a unique experiment design, this study conducted several relevant herd behavior simulation experiments.

Findings

We found that investors in the Chinese equity crowdfunding market exhibit herd behavior and that this herding is rational. Project attributes play a negative role in moderating the relationship between the current investment amount and cumulative investments. Experimental results further support our findings.

Originality/value

This study contributes to the emerging literature on herding in crowdfunding by focusing on equity crowdfunding in China. We are the first to explore whether Chinese equity crowdfunding investors exhibit rational herding behavior. The study is also original in applying social learning theory to equity crowdfunding and in using both actual crowdfunding campaigns and experimental approaches to collect data. This study has valuable implications to practice.

Citation

Yi, L., Shen, N., Xie, W. and Liu, Y. (2024), "Rational herding: evidence from equity crowdfunding", Management Decision, Vol. 62 No. 3, pp. 1008-1029. https://doi.org/10.1108/MD-09-2022-1310