Rethinking investors' herding behavior under the conditions of reward-based crowdfunding platform

Reward-based crowdfunding, an emerging financing channel for SMEs, has attracted significant attention from scholars and practitioners. Scholars have mostly explored investors’ herding behavior in platforms to better understand investors’ decision-making mechanisms and management of funding projects. However, current evidence is inconsistent regarding herding behavior during the funding process. This study proposes prior funding performances have a nonlinear effect on subsequent funding performance and that this nonlinear relationship is conditional on competition intensity and information disclosure.

Based on objective data collected from a dominant reward-based crowdfunding platform in China, this study follows a panel ordinary least squares (OLS) model to estimate the effects of prior funding performance on the subsequent funding performance and the moderating role of environmental factors (i.e. competition intensity and information disclosure) in a given platform.

The results show prior funding performance had an inverted U-shaped effect on subsequent performance; this inverted U-shaped relationship was attenuated when the number of interactive messages was larger and competition was more intense, and it was strengthened when information updates were more frequent.

The effects of prior funding performance on subsequent performance at different stages of the fundraising process and under different platform environments remains unclear. The authors revisit the varying viewpoints in existing research and propose that the enhancement and substitution effects of prior funding performance are dominant at different funding stages. Overall, the results of this study highlight that the crowdfunding platform environment may become a boundary condition for investors' herding behavior.