Impact of Quality Signals on Investors’ Investment Decision in Equity Crowdfunding

Abstract

Equity crowdfunding provides entrepreneurs and founders an opportunity to raise funds from large number of audience in which each investor provide small amount, instead of large amount from small group of professional investors. Early research focused on success drives of equity crowdfunding but this study explores the quality signals that affect the investors’ investment decision and help entrepreneurs to achieve overfunded campaign success in equity crowdfunding. Based on signaling theory, we develop a research model to conduct an empirical study using quantitative data collected from UK based world largest equity crowdfunding platform, Crowdcube. Findings show that quality signals have positive significant effect on investors’ investment decision. It means that investors’ behavior is same while making investment decision in equity crowdfunding as in conventional investment settings. Investors read quality signals in equity crowdfunding as well and choose those crowdfunding campaigns that are with high magnitude of quality signals. These results confirm that investors always evaluate investment opportunities in terms of business potential by analyzing quality signals in conventional investment opportunities as well as in equity crowdfunding.