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The Role of Customer Investor Involvement in Crowdfunding Success

Cornelius, PB; Gokpinar, B; (2019) The Role of Customer Investor Involvement in Crowdfunding Success. Management Science 10.1287/mnsc.2018.3211. (In press). Green open access

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Abstract

Entrepreneurs increasingly use reward-based crowdfunding to finance innovation projects through a large number of customer investments. The existing academic literature has predominantly studied factors that drive crowd investments and whether crowdfunding predicts market success. However, we argue that the involvement of customers goes beyond the provision of capital. As investors, customers enter into a principal–agent relationship with entrepreneurs. Thus, entrepreneurs are often faced with a crowd of customer investors who try to influence product development. We show that entrepreneurs can benefit from this influence, because customer investors provide some of the support usually received from institutional investors. Greater involvement from customer investors thus increases funding success. This holds when we control for creator ability and project quality. The effect is driven by customers’ influence on product development and the reduction in agency costs for prospective customers. We also link the involvement of customer investors during crowdfunding to the crowdsourcing literature and show that its positive effect is augmented by the elicitation of external information through distant search.

Type: Article
Title: The Role of Customer Investor Involvement in Crowdfunding Success
Open access status: An open access version is available from UCL Discovery
DOI: 10.1287/mnsc.2018.3211
Publisher version: https://doi.org/10.1287/mnsc.2018.3211
Language: English
Additional information: Copyright: © 2019 The Author(s). Open Access Statement: This work is licensed under a Creative Commons Attribution-NonCommercialNoDerivatives 4.0 International License. You are free to download this work and share with others, but cannot change in any way or use commercially without permission, and you must attribute this work as “Management Science. Copyright © 2019 The Author(s). https://doi.org/10.1287/mnsc.2018.3211, used under a Creative Commons Attribution License: https://creativecommons.org/licenses/bync-nd/4.0/.”
Keywords: crowdfunding, new product development, crowdsourcing, entrepreneurship, principal–agent relationship
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management
URI: https://discovery.ucl.ac.uk/id/eprint/10056444
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