Search behavior and decision confidence in equity crowdfunding: An information search process model perspective

ABSTRACT

Equity crowdfunding allows entrepreneurs to raise much needed capital by selling shares of ownership to individuals while avoiding the challenges associated with an initial public offering. However, the process by which crowdfunders choose to engage in equity crowdfunding has received limited attention in the academic literature. This gap is noteworthy because funders can withdraw committed funds without penalty and without notice if their feelings about the funding decision change before the funding round closes. This dynamic places considerable importance on understanding funding decision confidence—that is, the belief an individual has made a wise funding decision. We draw on Kuhlthau’s information search process model to guide our theorizing of how funding decision confidence evolves as individuals search for and ultimately act upon information. To isolate key decision processes, we conduct a policy capturing study using a novel process tracing method and find that information search increases funder decision confidence only to a point, after which confidence then decreases. Overall, our findings challenge the belief that equity crowdfunders are like traditional equities investors who primarily care about earning a return on their investment and suggest that entrepreneurs engaged in crowdfunding should consider funder motivation and actively manage the structure of information presented to potential crowdfunders.

KEYWORDS:

• Equity crowdfunding
• information search
• regulatory focus
• confidence

Notes

1 To minimize redundancy, we only report the moderator and both linear and quadratic interaction coefficients for models testing the moderating hypotheses. The linear and quadratic direct effects results for search effort and scope can be found in results reported for Hypotheses 1 and 2.