A costless way to increase funding and find success in crowdfunding campaigns
Research Paper Title:
“The power of positivity? The influence of positive psychological capital language on crowdfunding performance”
Authors:
Aaron Anglin (TCU, Neeley School of Business)
Jeremy Short (University of North Texas)
Will Drover (University of Oklahoma, Price College of Business)
Regan Stevenson (Indiana University, Kelley School of Business)
Aaron McKenny (Indiana University, Kelley School of Business)
Thomas Allison (TCU, Neeley School of Business)
Background:
Researchers have studied the linguistic tone of managers on earnings conference calls for public companies and its relationship to future earnings. For example, a positive linguistic tone in earnings announcements is predictive of increasing security prices. Trading algorithms using natural language processing are being used to scour earnings call transcripts to generate profitable signals that result in investment decisions. In a crowdfunding campaign, does positive psychological capital influence fundraising performance? Regan Stevenson and colleagues answer this question in their research as well as examine how social and human capital moderate the relationship between positive psychological capital language and crowdfunding performance.
Methodology:
Sample: crowdfunding campaigns from Kickstarter
Sample Size: 1726
Analytical Approach: computer aided text analysis, logistic regression, generalized linear modeling
Hypotheses:
There is a positive relationship between the use of positive psychological capital language and crowdfunding performance.
Social capital moderates the relationship between positive psychological capital language and crowdfunding performance such that increases in social capital strengthen the relationship between use of positive psychological capital language and crowdfunding performance.
Human capital moderates the relationship between positive psychological capital language and crowdfunding performance such that increases in human capital strengthen the relationship between use of positive psychological capital language and crowdfunding performance.
Results:
Support for hypothesis 1 indicates that a 10% increase in the use of positive psychological capital would be associated with an approximate 3% increase in the probability of success and an approximate 3.4% increase in the amount of funds raised. Support from hypothesis 3 suggests that a 10% increase in the use of positive psychological capital language for an entrepreneur who has launched two previous campaigns is associated with an additional 4.5 percentage points, which is a success rate of approximately 48.5%.
Conclusion:
Increasing the use of positive psychological capital language leads to greater crowdfunding performance. Signaling human capital strengthens this relationship but signaling social capital does not. Also, positive psychological capital language leads to greater performance when raising funds through debt-based crowdfunding platforms but has no influence in IPOs. This research adds to the signaling literature by providing evidence that positive PsyCap may be an important costless signal, particularly in non-traditional fundraising contexts like crowdfunding where information is scarce, there is no formal vetting process, and investors are often less sophisticated. As demand for crowdfunding increases, entrepreneurs should display positive psychological capital in their fundraising campaigns to distinguish themselves and show they are worthy of investor funds.