Discretionary tone in reward-based crowdfunding: Do project owners talk their way to success?

Speaker:SHAN Yuan, Associate Professor, UWA Business School, Accounting and Finance

Venue: School of Management, A423, Zijingang Campus

Time: June 21st, 9:30-12:30

Abstract: This study examines the relationship between abnormal tone and project performance of reward-based crowdfunding (RBC) using the Kickstarter data from 2009 to 2020. We document a negative relationship between abnormal tone in the RBC campaign section (Story) and project performance, but a positive relationship between abnormal tone in the section of Risks and Challenges (Risk) and funding success. We find that common-law jurisdiction has strong moderation in elevating the success of project with abnormal tone in Risk section, compared to civil-law jurisdiction does. Using the US SEC equity crowdfunding legislation, we find that the exogenous shock reduces the effect of abnormal tone in both Story and Risk sections. Further investigation of the concurrent effect of abnormal tone in the two sections shows that the increase in the discretionary tone given that it is overly optimistic has a negative effect on funding performance. Last, based on a machine learning Sent-latent Dirichlet Allocation model, we explore up to 70 specific risk categories embedded in Kickstarter projects, and we find that eight of them, namely downstream risk, international risk, product introduction risk, cost risk, funding risk, product quality risk, stakeholder risk, and human resource risk, are strongly and negatively associated with project success.