Beauty Contest in Equity-Based Crowdfunding Campaigns

Abstract

Purpose

This study investigates how investor sentiment influences equity-based crowdfunding campaigns outcomes, with a particular focus on sentiment related to specific industries. The motivation stems from the need to understand the behavioural drivers behind crowdfunding outcomes, especially in a context where both private and public funding coexist.

Study Design

We employed a machine learning approach, utilizing the PolBERT model to analyse investor sentiment from online forum discussions in Poland. The data consisted of sentiment expressed across various industry-specific discussions, which were analysed to assess their impact on crowdfunding campaign outcomes.

Findings

The study reveals that while positive investor industry sentiment enhances the capital raised for IPO-targeted companies, it negatively affects overall campaign success and the number of investors, particularly in non-IPO-targeted firms. These findings suggest a complex relationship between sentiment and campaign outcomes, where higher sentiment can sometimes deter participation in certain cases.

Contributions

This research introduces a novel category of behavioural success drivers in the context of equity crowdfunding, proposing a new classification of meta-drivers of crowdfunding success. Methodologically, the study demonstrates the efficacy of fine-tuned BERT-class models in processing language, offering new insights into the investor sentiment analysis.

Implications

The results have significant implications for both researchers and practitioners. For researchers, the study expands the understanding of behavioural finance in crowdfunding, while for practitioners, it provides strategic insights into how investor sentiment can influence campaign timing, structure, and expectations. The findings also offer value for policymakers by shedding light on investor behaviour in equity-based crowdfunding markets.

Keywords

equity-based crowdfunding sentiment analysis industry effect POLBERT natural language processing NLP

Get full access to this article

View all access options for this article.

References

Ahlers

G. C.

Cumming

Günther

Schweizer

(2015). Signaling in equity crowdfunding. Entrepreneurship: Theory and Practice, 39(4), 955–980. https://doi.org/10.1111/etap.12157

Alanyali

Moat

H. S.

Preis

(2013). Quantifying the relationship between financial news and the stock market. Scientific Reports, 3(1), 1–6. https://doi.org/10.1038/srep03578

Antweiler

Frank

M. Z.

(2004). Is all that talk just noise? The information content of internet stock message boards. The Journal of Finance, 59(3), 1259–1294. https://doi.org/10.2139/ssrn.282320

Astebro

T. B.

Sierra

M. F.

Lovo

Vulkan

(2023). Herding in equity crowdfunding. RAND Journal of Economics, forthcoming.

Bańka

M. S.

Kukurba

Miklaszewicz

Trzebiński

A. A.

Waszkiewicz

Boulangé

(2022). Crowdfunding. Research practice. Difin.

Barberis

Shleifer

Vishny

(1998). A model of investor sentiment. Journal of Financial Economics, 49(3), 307–343. https://doi.org/10.1016/S0304-405X(98)00027-0

Barbi

Mattioli

(2019). Human capital, investor trust, and equity crowdfunding. Research in International Business and Finance, 49(4), 1–12. https://doi.org/10.1016/j.ribaf.2019.02.005

Bjornsen

Borchers

Dority

Hayes

(2024). Predicting equity crowdfunding success. Jabminternational, 31(1), 65. https://doi.org/10.31966/jabminternational.v31i1.980

Block

Hornuf

Moritz

(2018). Which updates during an equity crowdfunding campaign increase crowd participation? Small Business Economics, 50(4), 3–27. https://doi.org/10.1007/s11187-017-9876-4

10.

Borchers

Bjornsen

Dority

Hayes

(2024). Predicting equity crowdfunding success: An examination of United States offerings using sentiment analysis. Journal of Accounting, Business and Management, 31(1), 65–79. https://doi.org/10.31966/jabminternational.v31i1.980

11.

Cevik

Kirci

A. B.

Cevik

E. I.

Dibooglu

(2022). Investor sentiments and stock markets during the COVID-19 pandemic. Financial Innovation, 8(1), 69. https://doi.org/10.1186/s40854-022-00375-0

12.

Civardi

Moro

Winborg

(2024). All that glitters is not gold! The (unexplored) determinants of equity crowdfunding. Small Business Economics, 63(1), 299–324. https://doi.org/10.1007/s11187-023-00813-y

13.

Coakley

Lazos

Liñares-Zegarra

J. M.

(2022). Equity crowdfunding founder teams: Campaign success and venture failure. British Journal of Management, 33(1), 286–305. https://doi.org/10.1111/1467-8551.12494

14.

Cumming

Meoli

Vismara

(2019). Investors’ choices between cash and voting rights: Evidence from dual-class equity crowdfunding. Research Policy, 48(8), Article 103740. https://doi.org/10.1016/j.respol.2019.01.014

15.

Cumming

D. J.

Johan

S. A.

(2020). Crowdfunding: Fundamental cases, facts, and insights. Elsevier. https://doi.org/10.1016/B978-0-12-814637-8.00010-X

16.

D’Agostino

L. M.

Ilbeigi

Torrisi

(2022). The role of human capital in Italian equity crowdfunding campaigns. The International Journal of Entrepreneurship and Innovation, 25(1), 146575032210944. https://doi.org/10.1177/14657503221094444

17.

Dehaan

Madsen

Piotroski

J. D.

(2017). Do weather-induced moods affect the processing of earnings news? Journal of Accounting Research, 55(3), 509–550. https://doi.org/10.1111/1475-679X.12160

18.

Dehghani

Piwowar-Sulej

Salari

Leone

Habibollah

(2023). The role of trust and e-WOM in the crowdfunding participation: The case of equity crowdfunding platforms in financial services in Iran. International Journal of Emerging Markets, 19(4), 2577–2596. ahead-of-print(No. ahead-of-print). https://doi.org/10.1108/IJOEM-09-2021-1358

19.

Devlin

Chang

M.-W.

Lee

Toutanova

(2019). BERT: Pre-Training of deep bidirectional transformers for language understanding. In Proceedings of the 2019 conference of the north American chapter of the association for computational linguistics: Human language technologies (pp. 4171–4186). Association for Computational Linguistics. https://doi.org/10.18653/v1/N19-1423

20.

Dority

Borchers

S. J.

Hayes

S. K.

(2021). Equity crowdfunding: US title II offerings using sentiment analysis. Studies in Economics and Finance, 38(4), 807–835. https://doi.org/10.1108/SEF-04-2020-0097

21.

Felipe

Mendes-Da-Silva

Ali

Francisco

(2023). Good news from mass media induces more investments in the equity crowdfunding market. Brazilian Administration Review, 20(1), 1–15. https://doi.org/10.1590/1807-7692bar2023210083

22.

Fisher

K. L.

Statman

(2000). Investor sentiment and stock returns. Financial Analysts Journal, 56(2), 16–23. https://doi.org/10.2469/faj.v56.n2.2340

23.

Fraiberger

S. P.

Lee

Puy

Ranciere

(2021). Media sentiment and international asset prices. Journal of International Economics, 133(C), Article 103526. https://doi.org/10.1016/j.jinteco.2021.103526

24.

Gao

Huang

Ryu

(2021). Effects of sentiment and emotion of campaign pitch on crowdfunding performance: A cross-cultural comparison. Journal of Research in Emerging Markets, 3(4), 23–34. https://doi.org/10.30585/jrems.v3i4.711

25.

García

(2013). Sentiment during recessions. The Journal of Finance, 68(3), 1267–1300. https://doi.org/10.1111/jofi.12027

26.

Gompers

Kovner

Lerner

Scharfstein

(2008). Venture capital investment cycles: The impact of public markets. Journal of Financial Economics, 87(1), 1–23. https://doi.org/10.1016/j.jfineco.2006.12.002

27.

Greenberg

M. D.

Hariharan

Gerber

(2013). Crowdfunding support tools: Predicting success failure. In CHI’13 extended abstracts on human factors in computing systems (pp. 1815–1820). Association for Computing Machinery. https://doi.org/10.1145/2468356.2468682

28.

Hayes

S. K.

Dority

B. L.

Borchers

S. J.

(2021). Equity crowdfunding: US title II offerings using sentiment analysis. SEF, 38(4), 807–835. https://doi.org/10.1108/SEF-04-2020-0097

29.

Hornuf

Schwienbacher

(2018). Market mechanisms and funding dynamics in equity crowdfunding. Journal of Corporate Finance, 50(1), 556–574. https://doi.org/10.1016/j.jcorpfin.2017.08.009

30.

Horvát

E.-Á.

Wachs

Wang

Hannák

(2018). The role of novelty in securing investors for equity crowdfunding campaigns. In Proceedings of the AAAI Conference on Human Computation and Crowdsourcing (Vol. 6). Zurich: HCOMP.

31.

(2023). Investor attention and crowdfunding performance. In Hawaii International Conference on System Sciences 2023 (HICSS-56) (Vol. 4). AIS.

32.

Jiang

Han

Liu

(2020). The impact of soft information extracted from descriptive text on crowdfunding performance. Electronic Commerce Research and Applications, 43, 2–13. https://doi.org/10.1016/j.elerap.2020.101002

33.

K. M.

Yang

(2021). Is there crowd wisdom in accounting? Evidence from forecasts in equity-based crowdfunding. Journal of Accounting, Auditing and Finance, 36(4), 723–749. https://doi.org/10.1177/0148558X20912100

34.

Johan

Zhang

(2020). Investors’ industry preference in equity crowdfunding. The Journal of Technology Transfer, 47(6), 1737–1765. https://doi.org/10.2139/ssrn.3894508

35.

Kamiński

J. C.

Hopp

(2020). Predicting outcomes in crowdfunding campaigns with textual, visual, and linguistic signals. Small Business Economics, 55(3), 627–649. https://doi.org/10.1007/s11187-019-00218-w

36.

Kantorovitch

(2022). Sentiment booms and information. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4259312

37.

Keller

M. C.

Fredrickson

B. L.

Ybarra

Côté

Johnson

Mikels

Wager

(2005). A warm heart and a clear head: The contingent effects of weather on mood and cognition. Psychological Science, 16(9), 724–731. https://doi.org/10.1111/j.1467-9280.2005.01602.x

38.

Keynes

J. M.

(1936). The general theory of employment, interest and money. Harcourt Brace and Co.

39.

Kim

Olbert

(2022). How does private firm disclosure affect demand for public firm equity? Evidence from the global equity market. Journal of Accounting and Economics, 74(2-3), 1–32. https://doi.org/10.1016/j.jacceco.2022.101545

40.

Kim

Lee

K. Y.

(2022). Impact of investor sentiment on stock returns. Asia‐Pacific Journal of Financial Studies, 51(1), 132–162. https://doi.org/10.1111/ajfs.12362

41.

Kłeczek

(2020). Polbert: Attacking polish NLP tasks with transformers. In Proceedings of the PolEval 2020 workshop. Institute of computer science. Polish Academy of Sciences. https://2020.poleval.pl/files/poleval2020.pdf

42.

Kleinert

Volkmann

(2019). Equity crowdfunding and the role of investor discussion boards. Venture Capital, 21(4), 327–352. https://doi.org/10.1080/13691066.2019.1569853

43.

Lachana

Schröder

(2022). Investor sentiment, social media and stock returns: Wisdom of crowds or power of words? https://doi.org/10.2139/ssrn.3842039

44.

Lai

C.-Y.

P.-C.

Hwang

S.-Y.

(2017). Incorporating comment text into success prediction of crowdfunding campaigns. In PACIS 2017 Proceedings, Malaysia, AIS.

45.

Tang

Yang

Ren

Zheng

Zhou

(2016). The value of information disclosure and lead investor in equity-based crowdfunding. Nankai Business Review International, 7(3), 301–321. https://doi.org/10.1108/NBRI-01-2016-0002

46.

Xing

(2023). When stock return synchronicity meets investor sentiment. Finance Research Letters, 53(4), Article 103655. https://doi.org/10.1016/j.frl.2023.103655

47.

Ling

D. C.

Naranjo

Scheick

(2010). Investor sentiment and asset pricing in public and private markets. RERI WP, 170, 1–48.

48.

Liu

Shi

Zeng

Zhang

(2023). Does public firms’ mandatory IFRS reporting crowd out private firms’ capital investment? Journal of Accounting Research, 61(4), 1263–1312. https://doi.org/10.1111/1475-679X.12494

49.

Liu

Lee

W. S.

Huang

(2022). Synergy between stock prices and investor sentiment in social media. Borsa Istanbul review, 23(3), 76–92. https://doi.org/10.1016/j.bir.2022.09.006

50.

Loughran

Schultz

(2004). Weather, stock returns, and the impact of localized trading behavior. Journal of Financial and Quantitative Analysis, 39(2), 343–364. https://doi.org/10.1017/S0022109000003100

51.

Piao

Yang

(2022). Does online investor sentiment impact stock returns? Evidence from the Chinese stock market. Applied Economics Letters, 29(15), 1434–1438. https://doi.org/10.1080/13504851.2021.1937490

52.

Marx

Lehmann-Waffenschmidt

(2022). The Keynesian beauty contest revisited. Journal of Economic Behavior & Organization, 204(2), 164–181. https://doi.org/10.1016/j.jebo.2022.06.029

53.

Moritz

Block

Lutz

(2015). Investor communication in equity-based crowdfunding: A qualitative-empirical study. Qualitative Research in Financial Markets, 7(3), 309–342. https://doi.org/10.1108/QRFM-07-2014-0021

54.

Mroczkowski

Rybak

Wróblewska

Gawlik

(2021). HerBERT: Efficiently pretrained transformer-based language model for polish. arXiv. https://doi.org/10.48550/arXiv.2105.01735

55.

Nguyen

T. H.

Shirai

Velcin

(2015). Sentiment analysis on social media for stock movement prediction. Expert Systems with Applications, 42(24), 9603–9611. https://doi.org/10.1016/j.eswa.2015.07.052

56.

Nitani

Riding

(2019). On equity crowdfunding: Investor rationality and success factors. Venture Capital, 21(2-3), 243–272. https://doi.org/10.1080/13691066.2018.1468542

57.

Nofsinger

J. R.

(2005). Social mood and financial economics. The Journal of Finance, 6(3), 144–160. https://doi.org/10.1207/s15427579jpfm0603_4

58.

Prokop

Wang

(2022). Is there a gender gap in equity-based crowdfunding? Small Business Economics, 59(3), 1219–1244. https://doi.org/10.1007/s11187-021-00574-6

59.

Rao

Srivastava

(2012). Analysing stock market movements using Twitter sentiment analysis. In ASONAM’12 Proceedings of the 2012 international conference on advances in social networks analysis and mining (pp. 119–123). ASONAM.

60.

Reichenbach

Walther

(2021). Signals in equity-based crowdfunding and risk of failure. Financial Innovation, 7(1), 1–30. https://doi.org/10.1186/s40854-021-00270-0

61.

Ren

Raghupathi

(2021). Exploring the subjective nature of crowdfunding decisions. Journal of Business Venturing Insights, 15(4), 1–12. https://doi.org/10.1016/j.jbvi.2021.e00233

62.

Saunders

E. M.

(1993). Stock prices and wall street weather. The American Economic Review, 83(5), 1337–1345.

63.

Sendra-Pons

Mas-Tur

Garzon

(2023). Anchor investors and equity crowdfunding for entrepreneurs. European Journal of Management and Business Economics, 33, 20–36. ahead-of-print(No. ahead-of-print). https://10.1108/EJMBE-06-2022-0167

64.

Shafi

(2021). Investors’ evaluation criteria in equity crowdfunding. Small Business Economics, 56(1), 3–37. https://doi.org/10.1007/s11187-019-00227-9

65.

Shafi

Mohammadi

(2020). Too gloomy to invest: Weather-induced mood and crowdfunding. Journal of Corporate Finance, 65(1), Article 101761. https://doi.org/10.1016/j.jcorpfin.2020.101761

66.

Signori

Vismara

(2018). Does success bring success? The post-offering lives of equity-crowdfunded firms. Journal of Corporate Finance, 50, 575–591. https://doi.org/10.1016/j.jcorpfin.2017.10.018

67.

Sopyła

Sawaniewski

Ł.

(2020). Polbert: Attacking polish nlp tasks with transformers. In Proceedings of the PolEval 2020 workshop. Institute of computer science. Polish Academy of Sciences. https://2020.poleval.pl/files/poleval2020.pdf

68.

Szyszka

(2013). Behavioral finance and capital markets: How psychology influences investors and corporations. Palgrave Macmillan.

69.

Troise

Matricano

D. D.

Sorrentino

M. M.

Candelo

(2022). Investigating investment decisions in equity crowdfunding: The role of projects’ intellectual capital. European Management Journal, 40(4), 406–418. https://doi.org/10.1016/j.emj.2021.07.006

70.

A. N.

Christian

(2023). UK equity crowdfunding success: The impact of competition, Brexit and Covid‐19. British Journal of Management, 35(1), 321–344. https://doi.org/10.1111/1467-8551.12714

71.

Vismara

(2016). Equity retention and social network theory in equity crowdfunding. Small Business Economics, 46, 579–590. https://doi.org/10.2139/ssrn.2654325

72.

Vismara

(2018). Information cascades among investors in equity crowdfunding. Entrepreneurship Theory and Practice, 42(3), 467–497. https://doi.org/10.1111/etap.12261

73.

Wang

Liang

(2018). Understanding the importance of interaction between creators and backers in crowdfunding success. Electronic Commerce Research and Applications, 27, 106–117.

74.

Wang

Guo

Y. J.

(2022). The merits of a sentiment analysis of antecedent comments for the prediction of online fundraising outcomes. Technological Forecasting and Social Change, 174, Article 121070.

75.

Wang

Zhu

Wang

Y.-C. J.

(2017). The impact of sentiment orientations on successful crowdfunding campaigns through text analytics. IET Software, 11(5), 229–238. https://doi.org/10.1049/iet-sen.2016.0295

76.

Wasti

S. M.

Ahmed

Khan

M. H.

(2024). Role of successive round as a quality signal in equity crowdfunding: Novel evidence from the perspective of investors’ preferences. PLoS One, 19(3), Article e0297820. https://doi.org/10.1371/journal.pone.0297820

77.

Shen

Xie

Liu

(2024). Rational herding: Evidence from equity crowdfunding. Management Decision, 62(3), 1008–1029. https://doi.org/10.1108/MD-09-2022-1310

78.

Yosipof

Drori

Elroy

Pierraki

(2024). Textual sentiment analysis and description characteristics in crowdfunding success: The case of cybersecurity and IoT industries. Electronic Markets, 34(1), 1–14. https://doi.org/10.1007/s12525-024-00712-4

79.

Yuan

Wang

Yin

Wang

(2021). How text sentiment moderates the impact of motivational cues on crowdfunding campaigns. Financial Innovation, 7(1), 1–26. https://doi.org/10.1186/s40854-021-00258-w

80.

Zhou

Fan

Wang

(2018). Project description and crowdfunding success: An exploratory study. Information Systems Frontiers, 20(2), 259–274. https://doi.org/10.1007/s10796-016-9723-1