Why funders invest in crowdfunding projects: Role of trust from the dual-process perspective
Introduction
Crowdfunding is an open call for funding via donation or in exchange for a reward in order to support specific projects and initiatives typically through the Internet [56,60]. It provides a new channel through which entrepreneurs can raise financial resources to undertake innovative projects and manage their ventures [7]. Although a large number of successful fundraising projects have been reported, the success rate is only around one-third. Many promising proposals were not funded for different reasons. Hence, exploring the mechanism and factors that determine funders’ intention to sponsor a project is an interesting research question.
Different types of crowdfunding platforms, with the most popular being reward-based, such as Eppela, Ulule, and Kickstarter [52], have attracted much attention from media and policymakers because of their contribution to support innovative projects and economic growth [19]. Kickstarter.com, for example, reported that by 2017 almost $3 billion US dollars were pledged for various creative projects by 12.7 million people with 4 million of them repeated bakers. According to [66], crowdfunding market grew by 167 percent in 2014 to reach $16.2 billion, up from $6.1 billion in 2013, and they anticipated crowdfunding sponsorship to grow to more than $34 billion in 2015. This strong growth is due in part to the rise of Asia as a major crowdfunding region. In a 2017 report [110], China has 427 crowdfunding platforms to raise RMB 22 billion.
The rapid growth of crowdfunding market has drawn much attention on various research issues (e.g. [51,7,60,1,78,74],). Some of them investigate why fundraisers use crowdfunding to obtain resources. For example, Schwienbacher and Larralde [87] suggested that entrepreneurs with sufficient knowledge about the use of Web 2.0 technologies were more willing to adopt crowdfunding for their business ventures. Others explore why funders sponsor projects. For instance, Gerber et al. [35] identified funders’ motivations to participate in crowdfunding projects, which include consuming products and experience, as well as social interaction.
Albeit the growth of funding scale, the failure rate of crowdfunded projects is very high. A report from Statistica indicates that, as of April 2017, the success rate of fully funded projects on Kickstarter.com was 35.79 percent. In other words, two-thirds of the listed projects failed, implying the need for more research on the mechanism and factors that affect project success. In a study by Gerber and Hui [34], they found one of the major deterrents to funders’ participation, which is “lack of trust”.
Trust has been identified in previous research to be a critical determinant to online users’ intended behaviors (e.g. [32,111,121,122],). This is particularly true for the investment decision. In a recent study, for instance, Bottazzi et al. [111] reported that trust plays a significant role in venture capital firms’ investment decisions. Their empirical data indicate that early-stage investment requires higher trust. As the funding raised from the crowd is typically through a web-based platform, which is, in essence, an early stage venture investment in the online environment. Hence, it would be reasonable to examine whether trust plays a similar role in crowdfunding. In crowdfunding literature, trust is also recognized as a critical determinant of investment intention recently [40,107,109]. However, these studies treated trust as antecedents and failed to explore factors that build trustworthiness. Furthermore, inconsistent finding exists to argue that trust has no significant effect on investment decision (e.g. [118],). Given the inconsistent finding and need for deeper knowledge about factors that affect the role of trust, it is important to explore more insight into what affects the trustworthiness and the success of a crowdfunding project.
In addition to treating trust as a primary antecedent of investment intention, previous studies have identified other influencing factors, such as project type and funding level (e.g. [109],). Kickstarter statistics also show a substantial difference in success rate among different types of projects. For instance, the success rates of theater and comics were 60.23% and 52.7% respectively, while technology and journalism were 19.80% and 21.50%, respectively (accessed April 14, 2017). Given such a big difference, it is natural that we need to investigate whether the role of trust varies when project type or other contextual factors change. So far, no research has investigated these issues.
The third issue that needs investigation is that previous research has identified several types of trust such as cognitive-based versus affective-based trust. It would be interesting also to know what role these different kinds of trust play.
Based on the research gap identified above, this study intends to answer the following research questions with solid theoretical support:
RQ1: Whether trust plays a significant role in the success of a crowdfunding project?
RQ2: What kind of trust-related factors affect the trustworthiness of a crowdfunding project?
RQ3: Whether the role of trust differs for different types of crowdfunding projects?
The proposed research model is based on the trust theory [112] and the dual-process theories [120]. Our model includes two types of trust-building antecedents, namely performance/cognition-based and affect/personality-based factors to elaborate the role of trust in determining funders’ intention to invest in crowdfunding projects. We also include project type and funding level as two contextual moderators. This model was evaluated with a web-based experiment on real fundraising cases. The reported investment intention is further verified by the actual outcome on a real fundraising platform.
The remainder of the paper is organized as follows. Our research model and hypotheses are described in the next section. This is followed by our research method in Section 3 and data analysis in Section 4. Section 5 discusses our findings and Section 6 concludes this study with suggested topics for further research.
Section snippets
Research model and hypotheses development
This study integrates the trust theory [112] with the dual-process theories [120] to serve as the theoretical basis for building the research model. According to Castelfranchi and Falcone [112], trust is a mental state which represents a complex attitude of a relying agent x who feels trust toward another agent y which is trusted, about the behavior or action relevant to the result/goal. Two types of beliefs are identified as basic components of trust: “Competence” belief and “disposition”
Research method
The proposed research model was evaluated with a web-based experiment (or called Internet-based experiment [108]) using real fundraising cases. The experimental approach has several advantages compared to the survey method. Most notably, subjects were assigned to project scenarios in a controlled manner so that confounding effects of other factors (such as project type or size) can be reduced. The web-based experiment has advantages in reaching more diverse samples and rare or specific
Data analyses and results
Partial least squares (PLS) analysis was applied to validate both the measurement model and the structural model. As a component-based approach for estimation, PLS is suitable because it can test complex relationships by avoiding inadmissible solutions and factor indeterminacy [28,33]. Moreover, PLS can be used not only for theory confirmation, but it can also suggest where relationships might or might not exist [33]. We used SmartPLS 3.0 [83] with the parameter setting of bootstrapping to be
Discussion and implications
This paper presents an integrative trust-based model with dual-process perspectives and empirical results from a web-based experiment to examine the role of trust and explore factors that affect funders’ intention to sponsor projects in different contexts. The result is verified with the actual funding outcome of those cases. In this section, we discuss several issues derived from our empirical findings and provide theoretical and managerial implications.
First, trust has been found to interpret
Conclusion
This study has applied two dual-process theories to investigate factors that affect funders’ intention to invest in crowdfunding projects. An integrated trust-based model was proposed from an elaboration likelihood perspective and tested with an online experiment using 36 real crowdfunded projects. By substantiating different dimensions of trust-related determinants, we have demonstrated significant effects of performance/cognition-based and affect/personality-based factors on funders’ trust
Acknowledgements
This project was financially funded by research grants under contract MOST-105-2420-H-004-006 from the Ministry of Science and Technology and the top university and excellent research center grant from the Ministry of Education.
Ting-Peng Liang is a Life-time National Chair Professor and director of the Electronic Commerce Research Center of National Sun Yat-sen University. He is an AIS Fellow (2003) and has taught at University of Illinois, Purdue University, Chinese University of Hong Kong, and City University of Hong Kong. In 2014, he was awarded an LEO by the Association for Information Systems for lifetime achievement in the field of information systems. He is the founding Editor-in-Chief of Pacific Asia Journal
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Ting-Peng Liang is a Life-time National Chair Professor and director of the Electronic Commerce Research Center of National Sun Yat-sen University. He is an AIS Fellow (2003) and has taught at University of Illinois, Purdue University, Chinese University of Hong Kong, and City University of Hong Kong. In 2014, he was awarded an LEO by the Association for Information Systems for lifetime achievement in the field of information systems. He is the founding Editor-in-Chief of Pacific Asia Journal of the Association for Information Systems, co-editor-in-Chief of Journal of Electronic Commerce Research, and serves on the editorial board of Journal of the AIS, Decision Support Systems, and several other journals. His papers have appeared in MIS Quarterly, Management Science, Journal of Management Information Systems, Operations Research, Decision Support Systems, International Journal of Electronic Commerce, and other journals. His recent research interests include intelligent systems and business analytics, IS strategy, electronic commerce, knowledge management, service innovation, and neuro-information systems.
Shelly Ping-Ju Wu is currently an Honorary Senior Lecturer at the Australian National University (ANU). Her research interests include IT governance and strategic alignment, IS management, electronic commerce, social media, and service innovation. She has published several papers in research journals such as MIS Quarterly, International Journal of Project Management, and Group Decision and Negotiation.
Chih-Chi Huang is currently the Product Director of LIORS Software Services Corp. Chih-Chi received her Master’s Degree from National Sun Yat-sen University.