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Soft and hard information in equity crowdfunding: network effects in the digitalization of entrepreneurial finance

Estrin, Saul ORCID: 0000-0002-3447-8593, Khavul, Susanna and Wright, Mike (2022) Soft and hard information in equity crowdfunding: network effects in the digitalization of entrepreneurial finance. Small Business Economics, 58 (4). 1761 - 1781. ISSN 0921-898X

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Identification Number: 10.1007/s11187-021-00473-w


As a digital financial innovation, equity crowdfunding (ECF) allows investors to exploit the complementarity of information provision and network effects in a reduced transaction cost environment. We build on the underlying distinction between soft and hard information and show that ECF platforms create an environment of greater information pooling that benefits from network externalities. We test our hypotheses using a unique proprietary dataset and find that soft information has a greater impact than hard on the likelihood that a financing pitch will be successful. Moreover, the effects of soft information are amplified by the size of the investor network on the platform and network size also positively moderates the effect of information on the amount invested during each pitch. We conclude that ECF platforms can successfully exploit low transaction costs of the digital environment and bring network externalities to bear on investor decisions. Taken together that these increase the supply of funds to entrepreneurs.

Item Type: Article
Official URL:
Additional Information: © 2021 The Authors
Divisions: Management
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G23 - Pension Funds; Other Private Financial Institutions
J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J26 - Retirement; Retirement Policies
M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M13 - Entrepreneurship
Date Deposited: 30 Mar 2021 09:15
Last Modified: 19 Jul 2024 18:12

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