Poms 13425

Vol. 0, No. 0, xxxx–xxxx 2021, pp. 1–18 DOI 10.1111/poms.
13425
ISSN 1059-1478|EISSN 1937-5956|21|00|0001 © 2021 Production and Operations Management Society
Building the Momentum: Information Disclosure and

Herding in Online Crowdfunding
Shengsheng Xiao
Shanghai University of Finance and Economics, Shanghai, 200433, China, xiao.shengsheng@shufe.edu.cn
Yi-Chun (Chad) Ho*

George Washington University, Washington, District of Columbia 20052-0086, USA, chadho@gwu.edu
Hai Che
University of California Riverside, Torrance, California 90504, USA, hai.che@ucr.edu
n online crowdfunding markets, backers face high uncertainty about the quality of a campaign. To mitigate such uncer-
I tainty, crowdfunding platforms often allow campaign creators to post communicative messages—that is, campaign
updates and creator comments—to dynamically disclose further information about the campaigns. In addition, previous
funding transactions of ongoing campaigns are made publicly available, giving rise to herding among backers. In this
research, we aim to understand how communicative messages and herding interactively shape the behavior of backers
contributing to crowdfunding campaigns. Our results show that the frequency of communicative messages has a positive
effect on backer contributions; however, it attenuates successors’ herding momentum toward predecessors, perhaps
because the information disclosed in those messages lowers the informational value of previous funding transactions. To
investigate the role of message contents, we extract topics addressed in update and comment messages using a Latent
Dirichlet Allocation model. The results reveal that distinct messages have different impacts on backers’ contribution and
herding behavior, and such discrepancies are found to be topic specific. This study not only contributes to operations
management literature on crowdfunding but also offers implications for campaign creators and platform managers.
Key words: crowdfunding; communications; herding; observational learning; topic modeling; instrument variables
History: Received: September 2018; Accepted: March 2021 by Subodha Kumar, after 4 revisions.
update section on a campaign’s page (Xu et al. 2014).

1. Introduction By posting update messages, creators proactively
Reward-based crowdfunding is a process wherein release up-to-date details about the campaign. There
individual backers contribute funds to support cam- is also a comment section on a campaign’s page where
paign creators’ ideas, in return for some products backers can raise questions about the campaign. By
known as rewards. Due to the information asymme- leaving comment messages, creators respond to back-
try in this market (Cornelius and Gokpinar 2020, ers and reactively offer requested information. The
Hildebrand et al. 2017, Kim and Viswanathan 2019, increased information disclosure through commu-
Wei et al. 2020), backers face high uncertainty about nicative messages enhances information transparency
the quality of a campaign (Jiang et al. 2020). Such (Granados et al. 2010), which is likely to improve the
uncertainty adversely affects potential backers’ will- creators’ perceived effort and trust (Buell et al. 2017,
ingness to contribute (Belleflamme et al. 2014), pre- Buell et al. 2020).
senting a challenge to crowdfunding platforms from a Second, the fundraising performance of an ongoing
revenue management standpoint (Allon and Babich campaign is publicized on the campaign’s page in real
2020). To induce more backer contributions, platforms time. The salience of predecessors’ contributions nur-
strive to improve information disclosure through var- tures observational learning (Zhang 2010) among
ious website policies and designs (Chen et al. 2020). backers. Literature suggests that prior individuals’
In this study, we focus on two prevalent website choices play an important role in influencing later
design features to mitigate quality uncertainty con- peers’ actions (Banerjee 1992, Cai et al. 2009). By
fronting backers. First, creators can choose to disclose observing and taking predecessors’ funding decisions
further campaign information during the fundraising as quality signals (Kim and Viswanathan 2019), suc-
process via two web communicative tools. There is an cessors can learn about a campaign’s quality from the
Please Cite this article in press as: Xiao, S. et al. Building the Momentum: Information Disclosure and Herding in Online Crowdfund-
ing. Production and Operations Management (2021), https://doi.org/10.1111/poms.13425
Xiao, Ho, and Che: Moderate Herding with Communication Messages
2 Production and Operations Management 0(0), pp. 1–18, © 2021 Production and Operations Management Society
collective wisdom of the crowd, giving rise to herding Extending this argument, we further propose that a
(Jiang et al. 2018, Simonsohn and Ariely 2008). More- high frequency of them is likely to lower the informa-
over, successors tend to moderate their momentum of tional value of predecessors’ funding decisions, atten-
herding based on some static listing attributes that are uating successors’ herding momentum.
initially announced in the pre-funding stage (Zhang In addition to their frequency, the content of com-
and Liu 2012). This implies that the information municative messages may also affect backers’ contri-
dynamically disclosed through communicative mes- bution decisions.1 Distinct messages may address
sages after fundraising starts might also have a mod- various topics, which, in turn, are likely to have dif-
erating effect on backer herding. ferent impacts on backers’ perceptions. While some
Considering the impact of aforementioned website topics encourage potential backers to support, others
features on backer behavior, we aim to address two demotivate them from contributing. For example,
important yet unanswered questions proposed in the informative campaign updates, for example, “A series
operations management literature on crowdfunding of durability tests have been conducted and the
(Allon and Babich 2020, Chen et al. 2020). The first results came back excellent,” may provide a positive
question concerns how the communicative tools can signal of the campaign’s quality and thus persuade
be strategically used by creators to enhance informa- prospective backers. However, bland and non-infor-
tion disclosure to backers (Chen et al. 2020). In the mative updates, for example, “Our campaign has
pre-funding stage, creators announce basic campaign been posted for two months and we are still in need
listing attributes that usually stay unchanged once of more supports,” could be perceived as annoying
publicized (e.g., textual description, pictures, reward and thus dampen potential backers’ enthusiasm.
tiers); after fundraising starts, creators then decide Bearing this difference in mind, we hypothesize that
whether to release additional campaign details via the contents of communicative messages may have
updates and comments. Yet, how effective such infor- different effects on backer contributions, depending
mation disclosure strategies might be in attracting on whether the topics addressed in those messages
backer contributions remains unclear and is hence can help alleviate backers’ quality uncertainty. Fur-
what we focus in this study. The second question lies thermore, when specific topics are found to affect
in how creators can manage communications with backer contributions positively, we anticipate that
backers to exploit herding behavior (Allon and Babich these messages would reduce successors’ reliance on
2020). Since herding is intrinsically a dynamic process the quality signals derived from predecessors, attenu-
among backers, we utilize a panel data model frame- ating the magnitude of the herding effect.
work to analyze how the momentum of backer herd- We collect data from campaigns that were posted
ing is moderated by both static listing attributes on a leading reward-based crowdfunding platform in
initially announced as well as the communicative China. A panel data set is constructed at the cam-
messages dynamically posted during the fundraising paign-day level. The daily number of a campaign’s
process. new backers serves as the dependent variable,
Motivated by these research opportunities, we for- whereas the lagged cumulative number of existing
mulate and answer the following three questions: (1) backers is treated as the key covariate to measure the
Do subsequent backers exhibit herding toward preceding size of the herd. We also construct the frequency and
peers, and, if so, is the momentum of herding moderated by content variables of update and comment messages
the campaign listing attributes? (2) How do campaign using their cumulative counts and cumulative proba-
updates and creator comments, concerning their frequency, bilities over various topics derived from a topic mod-
influence backers’ contribution and herding behavior? (3) eling approach. In the extant crowdfunding studies
How do campaign updates and creator comments, concern- that conduct text analyses, contents or topics are trea-
ing their contents, affect backers’ contribution and herding ted as exogenous variables. Since creators could
behavior? strategically change their communicative messages
We posit that creators can improve information dis- according to the varying market environment, it is
closure and increase customer contact (Karmarkar critical to address the potential endogeneity issue. To
2015) by posting communicative messages (i.e., cam- this end, we utilize the method of instrumental vari-
paign updates and creator comments). As the cumu- ables to correct the endogeneity of our key covariates,
lative number of communicative messages increases while controlling for unobserved heterogeneity at the
over time, backers obtain more information about the campaign level.
campaign and thus reduce their uncertainty about the Our empirical results show that subsequent backers
campaign quality. A high frequency of those mes- not only follow preceding peers’ funding decisions
sages leads to higher information transparency but use campaign listing attributes to moderate their
(Granados et al. 2010), which is expected to have a momentum of herding. More interestingly, we find
positive effect on backers’ willingness to contribute. that both the frequency and content of communicative
Production and Operations Management 0(0), pp. 1–18, © 2021 Production and Operations Management Society 3
messages affect backers’ behaviors. A larger number (2020) and Allon and Babich (2020) review the extant
of updates and comments have a positive effect on literature and provide some directions for furthering
backer contributions but, in the meantime, negatively the studies in crowdfunding markets, among other
moderate the magnitude of the herding effect. As to innovative online platforms. Earlier empirical work
the message content, we find that updates and com- tries to understand what campaign and creator char-
ments that convey campaign-related information lead acteristics are related to fundraising success (Lukkari-
to more funding yet attenuate the herding behavior of nen et al. 2016, Mollick 2014). More recently,
backers. researchers in operations management have con-
This study contributes to the operations manage- ducted theoretical analyses to understand (a) the opti-
ment literature by answering the calls from two recent mal strategy to increase campaign success probability
survey papers that illuminate promising research and revenue (Chakraborty and Swinney 2020, Hu
paths in online crowdfunding. We empirically inves- et al. 2015, Li et al. 2020) and (b) the mechanism
tigate the dynamic effects of communicative tools (as design of a crowdfunding platform (Belavina et al.
a platform-designed feature) on backer contributions 2020, Fatehi and Wagner 2019). Nonetheless, few
throughout the fundraising period—an important empirical papers study the effects of platform-de-
design-related issue worth further examination (Chen signed features on backers’ contribution behavior
et al. 2020). We also study the role of creator-initiated (e.g., Burtch et al. (2020)). In the operations manage-
communicative massages in shaping backer’s herding ment literature on crowdfunding, much of prior
behavior—another prominent yet unanswered ques- empirical research focuses on campaign success using
tion highlighted by Allon and Babich (2020). Our find- cross-sectional data, abstracting away from the
ings shed light on how these communicative tools can dynamic nature of the crowdfunding process. There
be designed and used more effectively to mitigate are a few exceptions: Kuppuswamy and Bayus (2018)
information asymmetry and attract more funding, study the dynamics of backer behavior over the
offering revenue management insights for managers fundraising period, Vismara (2018) reports the effect
of crowdfunding platforms (Allon and Babich 2020). of information cascade on campaign success, and Wei
On the modeling side, given the dynamic nature of et al. (2020) empirically investigate the dynamic and
creators’ communication strategy behavior and back- differential effects of pre-funding. Our study differen-
ers’ contribution behavior, our empirical framework tiates from the above work2 by focusing on the com-
combines panel data models with endogeneity correc- municative tools that are designed by the platforms
tions of herding and communicative message vari- and used by creators. By studying the effects of both
ables. This modeling choice contrasts with the extant the frequency and content of communicative mes-
crowdfunding research, which primarily relies on sages on backer contributions as well as their moder-
cross-sectional variations for predicting campaign ating effects on herding, we provide useful guidance
success (Parhankangas and Renko 2017). Further- for optimal campaign and platform designs, an open
more, to the best of our knowledge, we are the first in and important topic for research in Operations Man-
this literature stream to correct the endogeneity of agement and Information Systems interface (Cohen
communicative message variables. Two prior studies 2018, Kornish and Hutchison-Krupat 2017, Kumar
that also explore the role of campaign updates are et al. 2018).
Mejia et al. (2019) and Xu et al. (2014). Mejia et al.
(2019) demonstrate the correlation between campaign
updates and backer contributions using linear regres-
2. Hypothesis Development
sions. Xu et al. (2014) establish the association In this section, we hypothesize the role of campaign
between update messages and campaign fundraising listing attributes and communicative messages in
success in a predictive analysis. Nonetheless, cam- shaping backers’ contribution and herding behavior.
paign updates are treated as exogenous variables in
both studies, which could lead to biased estimates 2.1. The Role of Campaign Listing Attributes
(Xu et al. 2014). In contrast, we perform endogeneity Herding, which describes a social dynamic where
corrections for both the frequency and the content of successors follow the actions of predecessors, has
communicative messages, including both updates been a recognized phenomenon (Banerjee 1992). In
and comments, using the method of instrumental the crowdfunding literature, herding occurs as a
variables. Therefore, our work makes an important result of observational learning (Zhang and Liu 2012),
methodological contribution to extend the existing when successors follow predecessors’ funding deci-
work, by presenting a framework to draw unbiased sions and choose well-funded campaigns to con-
inferences on backers’ dynamic behaviors. tribute (Simonsohn and Ariely 2008). The literature
Our work is positioned in the growing literature on further suggests that crowdfunders use some observ-
crowdfunding in operations management. Chen et al. able information to adjust their tendency to herd
(Jiang et al. 2018, Zhang and Liu 2012). With this in Moreover, similar to composing a textual description
mind, we first discuss how backers’ funding decision and uploading pictures, creators also need to exert
is affected by various listing attributes that are partic- efforts to design rewards and determine the corre-
ularly salient in reward-based crowdfunding. We sponding contribution amounts. Potential backers
then proceed to hypothesize their role in moderating may perceive creators who offer more reward options
herding behavior of backers. as more diligent and serious (Kunz et al. 2017). As a
Description length and pictures uploaded. Before result, we propose that the number of reward tiers is
fundraising starts, creators need to submit a listing likely to have a positive effect on the number of back-
application and provide basic information about the ers a campaign will attract.
campaign, including a textual description and, Creator tenure. Crowdfunding is an online social
optionally, campaign-related pictures. Through the context (Burtch et al. 2016) where people with com-
campaign description, creators pitch the idea and mon interests together accomplish shared goals. In
offer “firsthand” information to the crowd such virtual communities (Burtch et al. 2016), creator
(Parhankangas and Renko 2017). With little to no tenure is expected to play an important role in formu-
extra information from other sources, backers tend to lating backers’ perception of trust in two salient
heavily rely on these basic listing attributes to evalu- dimensions: competence and integrity. On the one
ate the quality of a campaign (Burtch et al. 2016). Intu- hand, creators with longer tenure are likely to be per-
itively, a lengthier textual description is expected to ceived as more experienced in developing high-po-
disclose more motivational and operational details tential ideas and managing various crowdfunding
about a campaign. The higher perceived informative- activities (Buttice et al. 2017).3 This favorable attitude
ness reduces potential backers’ uncertainty about the leads to a higher level of competence-based trust (Butler
campaign’s quality, increasing their willingness to Jr and Cantrell 1984), a perception of trust that the cre-
contribute (Parhankangas and Renko 2017). Cam- ators possess the required competencies to carry out
paign-related pictures, on the other hand, could the campaign. Furthermore, creators with longer
enable richer communication that might be difficult to tenure are also likely to be perceived to have already
be delivered in a textual form, such as exhibiting pro- engaged in more interactions and communications
totypes or design arts (Koch and Siering 2015). By with the crowd on the same platform, which may help
uploading more pictures, creators can convey richer reduce potential backers’ uncertainty about the cre-
information to supplement the textual description, ators’ creditworthiness. This positive attitude results
which is expected to further improve the perceived in a higher level of integrity-based trust (Sitkin and
informativeness of the campaign. In addition, com- Roth 1993), another perception of trust that the cre-
posing descriptions and posting pictures are not cost- ators are honest and well-motivated. Based on the
less to creators. From a potential backer’s perspective, above discussion, we propose that creator tenure is
a lengthier description and more picture postings likely to have a positive effect on the number of back-
may signal the creators’ diligence and preparedness ers a campaign will attract.
in taking the campaign to fruition, enhancing cre- Moderation of listing attributes on herding. As
ators’ perceived credibility. Bearing the above discus- previously discussed, subsequent backers’ decision-
sion in mind, we propose that the length of a textual making is in large part influenced by two different
description and the number of uploaded pictures will information cues: (a) preceding peers’ funding deci-
have a positive effect on the number of backers a cam- sions and (b) listing attributes of campaigns. The
paign will attract. crowdfunding literature suggests that backers
Reward tiers. A unique feature of reward-based observe and learn from peers’ actions (Zhang and Liu
crowdfunding is that creators can offer a range of 2012). In what follows, we hypothesize that favorable
rewards to backers, typically in a tiered structure. In listing attributes will negatively moderate backers’
particular, a creator may offer a product with full herding behavior due to observational learning and
functionality as a reward for a larger amount of con- attribution behavior.
tribution, another product with limited features in To illustrate the reasoning behind, consider two
exchange for a smaller amount of contribution, and so campaigns (A and B) that are nearly identical, except
on. We anticipate a positive link between the number one listing attribute in favor of campaign A.4 Observ-
of reward tiers and backers’ willingness to contribute. ing such a difference, the crowd would expect cam-
The reasoning is as follows. Crowd backers are lar- paign A to attract more backers than campaign B.5
gely heterogeneous: they derive different valuations Suppose now that the two campaigns end up attract-
toward the same campaign and have different dispos- ing an equal number of backers at a given point of
able incomes to spare. As the number of reward tiers time. Attribution theory holds that people are “naı̈ve
increases, there is a higher chance for a potential psychologists” who observe, analyze, and explain
backer to find an option that best fits her needs. behaviors of others (Fritz 1958). That is, individuals
would infer the causes for others’ actions, especially generate more attention, visibility, and excitement
unexpected ones, and use those inferred causes to around a campaign, leading to better fundraising per-
guide their own follow-up responses. Applying this formance (Kuppuswamy and Bayus 2018). On the
theory to our example, a potential backer would form other hand, frequent creator comment postings may
an attributional explanation to make sense of the make backers feel more bonded to a campaign, which
observed outcome—a more favorable campaign (i.e., in turn might bring in more supports (Gremler and
campaign A) is equally well-funded as a less favor- Gwinner 2000). Based on the reasons above, we
able one (i.e., campaign B). For example, she might hypothesize that potential backers are more moti-
infer that, for backers of campaign B to be willing to vated to contribute to the campaign as the creators
fund a seemingly unfavorable alternative, they must post more updates and comments.
hold some positive private knowledge about it.6 By How communicative messages impact social
contrast, the decision to support campaign A is self- dynamics among backers is a subtler question and
evident and hence carries less informational value hence worth closer examination. We propose that the
from a potential backer’s perspective. As a result, a frequency of updates and comments is likely to nega-
potential backer would perceive the contributions tively moderate the magnitude of the herding effect.
made to campaign B as of more informational value, The reasoning is similar to the theoretical argument
and hence rely more heavily on those signals. In other developed for H1. For a campaign with fewer update
words, ceteris paribus, subsequent backers would and comment messages, a potential backer would
demonstrate a stronger herding momentum toward infer that the predecessors must hold some positive
campaigns with unfavorable attributes (e.g., a shorter private information to justify their decision to fund a
textual description, fewer pictures, fewer reward seemingly unfavorable campaign. Therefore, she
tiers, and a creator with shorter tenure), and vice would perceive those funding decisions as of more
versa for campaigns with favorable attributes. informational value and thus demonstrate a stronger
herding momentum toward them. Furthermore, from
HYPOTHESIS 1 (H1). In reward-based crowdfunding, a perspective of information provision, there might
campaigns with favorable listing attributes and a larger exist a substitution effect between two different infor-
existing backer base will attract more new backers. How- mational cues. Since the information disclosed in
ever, favorable listing attributes will negatively moderate communicative messages tends to be more up-to-date
subsequent backers’ herding momentum toward preceding (as in campaign updates) and more customized (as in
peers. creator comments), potential backers are likely to
value those messages more and accordingly turn less
2.2. The Role of the Frequency of Communicative reliant on the quality signals derived from the herd.
Messages
On crowdfunding platforms, creators are not per- HYPOTHESIS 2 (H2). A higher frequency of updates and
mitted to change listing attributes after fundraising comments will bring in more new backers. However, they
starts. Nonetheless, by posting communicative mes- weaken subsequent backers’ herding momentum toward
sages, they can disclose additional and relevant infor- preceding peers, ceteris paribus.
mation during the fundraising process. In this section,
we discuss how the frequency of updates and com- 2.3. The Role of the Content of Communicative
ments influences backers’ contribution behavior. Messages
As previously discussed, creators can proactively Extant research has documented that the content of
release up-to-date details about the campaigns via communicative messages can affect the decisions of
updates (Chen et al. 2020) and reactively respond to individuals who consume the content (Ho et al. 2017,
backers with relevant information via comments. Wu et al. 2015). In the crowdfunding literature, the
From an information disclosure standpoint, a larger content of creator-backer communications, despite in
number of updates and comments are expected to different forms, is also found to influence fundraising
convey more up-to-date and relevant information to outcomes (Mejia et al. 2019, Xu and Chau 2018). Moti-
the crowd. The increased perceived informativeness vated by these findings, we are also interested in
reduces information asymmetry and results in a more examining how the qualitative measure of updates
realistic expectation, increasing backers’ willingness and comments affects backers’ funding and herding
to contribute (Zheng et al. 2014). From a motivational behavior.
perspective, when a creator is more active in mana- Prior studies built upon content analysis suggest a
ging communications, potential backers are likely to consensus: distinct types of contents, given their dif-
form a greater extent of perceived effort and trust ferences in informational value, have varied impacts
(Mejia et al. 2019) and hence become more attracted to on online users’ actions. For example, Yang et al.
the campaigns. More updates are also likely to (2019) analyze user-generated posts on Facebook
business pages and classified those posts into seven posting her fundraising need on a campaign page,
categories. They find that posts from distinct content which contains information about various listing attri-
categories have different impacts on consumers’ butes and a menu of reward offerings. During the
engagement. In a similar spirit, varied social media fundraising period, potential backers can browse a
marketing contents are also found to have dissimilar campaign’s page where they can also observe how
effects on user engagements, such as liking, sharing, many preceding peers have contributed to the cam-
and clicking on different marketing messages (Lee paign.
et al. 2018). Following the same logic from a decision- To reduce backers’ quality uncertainty of crowd-
making perspective, we anticipate that the effects of funding campaigns, the platform displays each cam-
update and comment messages on backer behaviors paign’s listing attributes and real-time fundraising
are likely to be content specific. More specifically, we progress in a salient manner. Listing attributes
argue that message topics that are closely related to include a textual description, campaign-related pic-
campaigns and creators are likely to mitigate informa- tures, tiered reward options, and creator tenure,
tion asymmetry and increase information transpar- among others. Real-time fundraising progress infor-
ency (Granados et al. 2010); the enhanced information mation includes the cumulative number of backers,
disclosure will encourage potential backers to contri- cumulative contribution amount, remaining days
bute. On the other hand, posting non-informative until the end of the fundraising period, etc. Such real-
messages with a mere intention to draw attention is time fundraising statistics provide rich information
likely to be perceived as being “desperate” or annoy- about contributions collectively made by preceding
ing (Granados et al. 2010). This negative perception backers, giving rise to herding among backers.
will curb potential backers’ enthusiasm. As such, we Although campaign listing attributes cannot be
propose that non-informative updates and comments modified once announced, creators can still disclose
would either have no effect or discourage potential further information about their campaigns via two
backers from supporting the campaigns (Wang and communicative tools provided by the platform. In our
Strong 1996, Xu and Chau 2018). context, creators can post campaign updates to dis-
Lastly, we hypothesize that when a specific topic close up-to-date details in a proactive manner (see
addressed in communicative messages has an effect Figure B1 in Online Appendix for an example). They
on the backer contribution (regardless of its direc- can also respond to comments that are left by backers
tion), this topic will moderate backers’ herding mag- in a reactive manner (see Figure B2 in Online
nitude in the opposite direction. The reasoning is Appendix for an example). All the update and com-
similar to the moderating role of campaign-related ment messages are publicly displayed on the plat-
characteristics, as previously argued in the develop- form. Posting those communicative messages
ment of H1 (listing attributes) and H2 (frequency of improves information provision and enhances back-
communicative messages). Message topics that dis- ers’ perceptions toward the creator. In this regard, our
courage (encourage) contributions are regarded as context provides an ideal setting to explore how crea-
unfavorable (favorable) attributes of a campaign. As tors’ communicative messages and preceding back-
observational learners, potential backers would per- ers’ funding decisions interactively impact
ceive contributions made to an unfavorable (favor- successors’ contribution and herding behavior.
able) campaign as of more (less) informational value,
and therefore accentuate (attenuate) their reliance on 3.2. Data
predecessors’ funding signals. We adopt the “snowballing” sampling method and
collect a total of 3,305 campaigns that were listed on
HYPOTHESIS 3 (H3). Distinct contents of updates and the platform from December 9, 2013 to August 21,
comments will have different main effects on backer con- 2015.8 For each campaign, we observe its listing attri-
tributions. Moreover, when those main effects are signifi- butes as well as the details of all funding transactions.
cant, the same contents will moderate backers’ herding We also keep track of campaign updates and com-
momentum in the opposite direction of their main effects. ments that were posted during the fundraising period
of each campaign. The data include both successful
(fully funded by the end of the fundraising period)
3. Context, Data, and Variables and failed campaigns. Each campaign belongs to one
3.1. Context of nine categories predefined by the platform. The fre-
Our context is a leading reward-based crowdfunding quencies and success rates of all campaigns across
platform in China. The platform was launched in 2013 nine categories are presented in Table 1. We observe
and has grown into one of the world’s largest crowd- that non-profit campaigns have the highest count, fol-
funding platforms.7 Similar to other major crowd- lowed by technology, entertainment, and agriculture
funding platforms, the process starts with a creator campaigns. Art and entertainment campaigns have
Table 1 Campaign Fundraising Outcomes across Categories Table 2 Summary Statistics of Campaigns on Crowdfunding Result
(N = 3,305)
Campaign Success
category Total Percentage #Successful #Failed rate Successful campaign Failed campaign
Non-profit 725 21.94% 513 212 70.76%
Mean Std. Dev. Mean Std. Dev.
Technology 524 15.85% 279 245 53.24%
Entertainment 481 14.55% 379 102 78.79% Campaign listing attributes
Agriculture 481 14.55% 239 242 49.69% #Characters in description 1,639.64 1,239.17 1,354.31 1,273.12
Publishing 438 13.25% 282 156 64.38% #Picture in description 10.79 7.41 11.30 8.42
Art 297 8.99% 237 60 79.80% #Reward tier 6.48 2.15 6.55 2.01
Others 292 8.84% 202 90 69.18% Creator tenure 71.84 94.50 61.73 95.73
Business Store 61 1.85% 27 34 44.26% Communicative messages
House 6 0.18% 4 2 66.66% #Updates 4.30 6.01 0.91 1.33
Crowdfunding #Creator comments 21.71 150.76 3.90 11.27
Total 3,305 100.00% 2,162 1,143 #Backer comments 28.14 68.60 9.06 15.02
Notes: Statistics are computed using raw values.
the highest success rates (79.80% and 78.79%),

whereas agriculture and business store campaigns the total number of backers of each campaign in a sali-
have the worst fundraising outcomes (49.69% and ent manner (i.e., at the top section of a campaign
44.26%). page), we expect this aggregate information, which
For each campaign, we observe time-invariant list- reflects predecessors’ collective evaluation of a cam-
ing attributes, such as the number of characters used paign’s quality, is likely to influence the funding deci-
in the textual description, number of picture posted, sions of subsequent backers. Accordingly, we use the
number of reward tiers, and creator tenure on the cumulative number of backers a given campaign has
platform at the time of campaign posting. For each attracted before a given day (LagCumulativeBacker) to
funding transaction, we observe its contribution measure the size of the herd. A positive correlation
amount and time. To examine herding among back- between these two variables will inform us that suc-
ers, we first construct the data at the backer-campaign cessors tend to mimic predecessors’ decisions by
level. With the timestamp of each contribution, we choosing campaigns that have already accumulated a
can derive time-variant characteristics at the cam- large backer base (i.e., a larger herd) to contribute. We
paign level, such as the cumulative number of backers also use the dollar amount of contributions as an
and the cumulative number of update and comment alternative herding measure in a robustness check
messages. Table 2 compares our key statistics and find consistent results (available in Online
between successful and failed campaigns. On aver- Appendix D).
age, successful campaigns, compared to their failed
counterparts, are associated with a lengthier descrip- 3.3.2 Measuring Communicative Messages. As
tion, creators with longer tenure, and a higher fre- previously discussed, we consider both the quantita-
quency of communicative messages. tive and qualitative measures of update and comment
messages. To measure the frequency of these mes-
3.3. Variables sages, for each campaign, we construct two variables:
Given that the fundraising period of an average cam- (a) the cumulative number of campaign updates
paign is about 33.7 days, gauging backer’s contribu- (CumulativeUpdate) and (b) the ratio of the cumulative
tion behavior and creators’ communication activities number of creator comments to the cumulative num-
at the daily level appears the most appropriate. As ber of total comments (CCommentRatio), both at the
such, we aggregate our panel data at the campaign- campaign-day level.
day level for model estimation. Table 3 summarizes Next, we discuss how we utilize machine learning
the description and the summary statistics of our key techniques to extract the content from the unstruc-
variables. For variables that are right-skewed, we add tured data. We adopt Latent Dirichlet Allocation
1 and then log-transform them to deal with the hyper- (LDA) models, a popular topic modeling approach, to
dispersion property before estimations (Choi et al. extract the main topics addressed in each communica-
2019, Ho et al. 2017). tive message. LDA models treat a textual document
(i.e., an update or a comment message in our study)
3.3.1 Measuring Momentum of Herding. We use as a mixture of some latent topics, each of which is
the number of new backers who support a given cam- modeled as a distribution over some high-frequency
paign on a given day (NewBacker) to measure backers’ keywords extracted from all textual documents (Blei
contribution behavior. Give that the platform displays 2012, Blei et al. 2003). As a generative probabilistic
Table 3 Summary Statistics of Main Variables
Variable name Description Max Min Mean Std. Dev.

Time-invariant Variables (at the campaign level)
LenDescription # of characters in description 13,610 21 1,540.97 1,258.16
#Picture # of pictures in description 67 0 10.97 7.78
#RewardTier # of reward tiers 30 2 6.50 2.10
CreatorTenure Creator tenure on the platform 589 0 68.35 95.03
Time-variant Variables (at the campaign-day level)
NewBacker # of new backers 6,320 0 2.75 35.71
CumulativeBacker # of cumulative backers 6,349 0 53.88 150.79
CumulativeUpdate # of cumulative updates 241 0 0.91 3.31
CCommentRatio The ratio of creators’ to total comments 1 0 0.39 0.64
CompetingCampaign # of active campaigns in same category 948 18 577.21 210.80
Notes: Statistics are computed using raw values.
model, LDA has gained more and more attention of the extracted content information, we need to
from researchers in economics and business research derive some quantifiable measures that can be incor-
to deal with unstructured textual data (Büschken and porated into our econometric analysis. To this end, for
Allenby 2016, Huang et al. 2018, Humphreys and update messages, we construct CumulativeUpdateTo-
Wang 2018). picj (where j = 1, 2, 3, and 4) by summing up the
Following the standard steps in natural language topic-specific membership probabilities across all
processing, we first preprocess raw textual data by updates associated with the same campaign. Simi-
conducting word segmentation and stop-words larly, CumulativeCommentTopicj (where j = 1, 2, and 3)
removing, after which each document is represented can be derived by summing up the topic-specific
by a bag of words. Next, we use term frequency- membership probabilities across all comment mes-
inverse document frequency (TF-IDF) score to filter sages associated with the same campaign. Recall that
words that have either very high or very low fre- the topic-specific membership probabilities sum up to
quency from each document. The “textmineR” pack- one at the message level. Aggregate variable Cumula-
age within R9 is then used to implement the topic tiveUpdateTopicj (CumulativeCommentTopicj) can be
modeling analysis. It is worth noting that we treat interpreted as and used to measure the “stock of
updates and comments as two different types of information” that is specific to topic j and conveyed
documents because they are fundamentally different through all updates (comments) of a given campaign.
concerning their informational roles and the sources
(i.e., updates can only be published by creators,
whereas comments are posted by both backers and
4. Empirical Analysis
creators). Thus, we run two separate LDA models, In this section, we first introduce a model to test
one for update documents and the other for comment whether herding exists in our context, and if so,
documents.10 whether the magnitude of the herding effect is moder-
A series of diagnostic tests suggest that the optimal ated by the campaign listing attributes. Next, we
number of topics for updates and comments is four explore the role of updates and comments in shaping
and three, respectively. Based on the set of keywords backers’ contribution and herding behavior.
associated with each topic, we can derive the primary
content that is delivered across all topics as follows. 4.1. The Effect of Campaign Listing Attributes
For updates, we obtain four extracted topics, that is, Let subscript i denote campaign and t denote day. A
fundraising progress & encouragements, campaign success straightforward test of herding behavior is to examine
announcements, campaign-related details, and campaign how the number of new backers who contribute to
kick-off announcements. For comments, we derive three campaign i on day t, that is, logNewBackerit, is asso-
extracted topics, that is, backer compliments, fundraising ciated with the cumulative number of backers the
reminders, and general Q&A. Keywords and sample same campaign has attracted prior to day t, that is,
documents associated with each topic are available in logCumulativeBackeri,t-1.12 Accordingly, we have the
Online Appendix C. following specification:
Another important piece of information produced
by our LDA models is the distribution of the probabil- logNewBackerit ¼ β1 logCumulativeBackeri;t1
ity of a given document belonging to each of the
þβ2 logCumulativeBackeri;t1 Zi
extracted topics.11 It is worth noting that, for each
message (or document), the topic-specific member- þγXit þ μi þ ɛ it : (1)
ship probabilities must sum up to one. To make use
Parameters of interest are β1 and β2. A positive β1 the campaign derived from the herd (i.e., logCumu-
will indicate that backers are more likely to contribute lativeBackeri,t-1) are not yet available to potential
to campaigns that have attracted a larger backer base, backers.
confirming the existence of herding. The magnitude Our first-day regression might be subject to the
of β1 will reflect the magnitude of the herding effect, if omitted variable problem: Many of those first-day
there is any. backers are likely to be the creator’s friends who
As discussed in section 2, we hypothesize that the are willing to support anyway, regardless of the
momentum of herding is attenuated by favorable campaign’s listing attributes. As such, a creator
campaign listing attributes. To operationalize, we who has more friends is likely to have a better
interact the herding variable with these time-invariant fundraising performance on the first day. If this
listing attributes, Z, including the characters used in was the case, the results from our first-day regres-
the textual description (logLenDescriptioni), the num- sion model could be misleading. To deal with this
ber of pictures uploaded (log#Picturesi), the number potential issue, we follow prior literature and adopt
of reward tiers (log#RewardTieri), and the creator’s a proxy variable approach (Wooldridge 2002).
tenure on the platform (logCreatorTenurei). A vector Specifically, we construct a proxy variable, log#Re-
[logCumulativeBacker x Z] denotes those interaction peatedBackeri, to capture the logged number of total
terms. repeated backers within campaign i. The rationale
X denotes a vector of control variables. We is that since it is uncommon for a non-friend
include the number of days since campaign i was backer to support the same campaign multiple
posted (logDaysElaspedit) and its quadratic term to times, the number of repeated backers within a
capture the potential non-linear contribution pattern campaign should provide some information about
over the fundraising period. To control for other the creators’ social connections and therefore can
time effects, we add 6 day-of-the-week dummies serve as a proxy variable.14 Following this logic,
(Monit ~ Satit), 11 monthly dummies (Janit ~ Novit), we regress the number of first-day backers on log#-
and two yearly dummies (for year 2014 and year RepeatedBackeri along with all other listing attributes
2015, treating year 2013 as the base case). Campaign interacting with the herding variable in (1).
fixed effects (μi) are added to control for unob-
served heterogeneity at the campaign level.13 It is 4.2. The Effect of Communicative Messages
worth noting that since any time-invariant variation Next, we examine the effects of update and comment
across campaigns will be captured by μi, we should messages on subsequent backers’ contribution deci-
remove time-invariant listing attributes from X for sions. As discussed in section 2, we focus on both
the identification purpose. To further account for quantitative and qualitative measures of those com-
the potential competition effects among similar cam- municative messages. For the quantitative measures,
paigns, we also include the number of other active we include the cumulative number of updates
campaigns in the same category as campaign i on (logCumulativeUpdateit) and the creator comment ratio
day t (logCompetingCampaignit) in X. Finally, ϵit are (CCommentRatioit), until day t, as well as their interac-
idiosyncratic errors. tion terms with the herding measure (logCumula-
Since the aforementioned listing attributes are tiveBackeri,t-1) in our herding model. Accordingly, we
time-invariant, their main effects on backer contri- can argument Equation (1) as:

logNewBackerit ¼ β1 logCumulativeBackeri;t1 þ β2 logCumulativeBackeri;t1 Zi þ γXit
þ δ1 logCumulativeUpdateit þ δ2 logCumulativeBackeri;t1 logCumulativeUpdateit (2)
þ δ3 CCommentRatioit þ δ4 logCumulativeBackeri;t1 CCommentRatioit þ μi þ ɛ it :
bution cannot be separately estimated or identified We will be able to test H2 based on the estimates of
in the panel data model. To deal with this prob- δ.
lem, we estimate a separate model which regresses To investigate the content effect of communica-
the number of backers who contributed on the first day tive messages, we augment Equation (1) by
of the fundraising period on various listing attri- including CumulativeUpdateTopicjit (j = 1, 2, 3, 4)
butes (Z). This first-day analysis allows us to and CumulativeCommentTopicjit (j = 1, 2, 3), as well
uncover the signs of their main effects because, on as their interaction terms with our herding mea-
the first day of a campaign, quality signals about sure:
logNewBackerit ¼

β1 logCumulativeBackeri;t1 þ β2 logCumulativeBackeri;t1 Zi þ γXit þ
λ1:4 ðCumulativeUpdateTopic1it : CumulativeUpdateTopic4it Þþ

λ5:8 logCumulativeBackeri;t1 ðCumulativeUpdateTopic1it : CumulativeUpdateTopic4it Þ þ (3)
θ1:3 ðCumulativeCommentTopic1it : CumulativeCommentTopic3it Þþ

θ4:6 logCumulativeBackeri;t1 ðCumulativeCommentTopic1it : CumulativeCommentTopic3it Þ þ
μi þ ɛ it :
The parameters of our interest in testing H3 are λ correlated because the response information of inac-
and θ. H3 will be supported when the estimates of λ tive campaigns in the same category provides good
and θ are varied with respect to the signs and signifi- references for a focal creator. AvgCCommentRatioit is
cance levels. however uncorrelated with the unobservable error
term of the focal active campaign. Finally, we use the
4.3. Potential Empirical Issues log average number of backers of inactive campaigns
The inclusion of CumulativeUpdate, CCommentRatio, in the same category (i.e., logAvgNumBackerit) and the
and lagged CumulativeBacker may lead to potential total number of inactive campaigns in the same cate-
endogeneity. For example, the amount of a creator’s gory (i.e., logNumCampaignInactiveit) as instruments
communicative messages on day t may depend on for logCumulativeBackerit-1. The same logic applies to
the campaign’s fundraising performance on day t-1 this variable choice as well.15
(i.e., NewBackeri,t-1). The interaction between New- To verify the effectiveness of the proposed instru-
Backer and CumulativeUpdate could lead to biased ment variables, we first assess the strength of our
coefficient estimates (Wooldridge 2002). By the same instrument variables by evaluating the Kleibergen–-
token, the lagged CumulativeBacker may also be Paap (KP) statistic (Kleibergen and Paap 2006) from
endogenous since its value may also depend on New- the first stage regression of a two-stage least square
Backeri,t-1. A useful solution to address these endo- (2SLS) procedure. We use KP statistic for evaluation
geneity issues is the two-stage least square (2SLS) because it is more appropriate than the Cragg–Don-
estimation with instrument variables (IVs) (Greene ald–Wald F-statistic when there is more than one
2000, Heckman 1997). In general, ideal instrument instrument variable in the presence of heteroscedas-
variables should satisfy two critical prerequisites, ticity (Baum et al. 2003). The KP Wald F-statistic is
namely the relevance assumption and the exogeneity 24.780, which is much higher than the critical value
assumption (Greene 2000). The relevance assumption (6.61) for the Stock-Yogo weak instrument variable
requires that IVs have to be strongly correlated with test, evaluated at the 10% maximal instrument vari-
the endogenous explanatory variables, whereas the able relative bias (Stock and Yogo 2002). This confirms
exogeneity assumption requires that IVs must be that the proposed instrument variables are strong
uncorrelated with the structural errors. ones. To check the exogeneity assumption, we then
In our study, we use logAvgNumUpdateit, the log conduct a test of over-identifying restrictions based
average number of updates associated with inactive on Hansen’s J statistic (Hansen 1982). The test usually
campaigns (whose fundraising period has ended regresses the residuals from an instrument variable or
before campaign i is posted) in the same category, as 2SLS regression on all instruments, under the null
the instrument variable for logCumulativeUpdateit. The hypothesis that all instruments are uncorrelated with
rationale behind this choice is that logAvgNumUpdateit the error term. For the proposed instrument variables,
and logCumulativeUpdateit are correlated because the the Hansen’s J statistic is small (1.314, with p = 0.518).
former provides useful information about the amount As a result, we fail to reject the null hypothesis, sug-
of other creators’ update messages and can be used as gesting that the proposed instrument variables are
an important reference for a focal creator. Nonethe- exogenous.
less, logAvgNumUpdateit is unlikely to be correlated Similarly, the content measures included in (3) can
with the unobservable error term of a focal campaign, also be endogenous. For example, creators’ selection
since its value cannot be determined by the creator of of update and comment topic on time t may also
the campaign being instrumented. Similarly, we use depend on the campaign’s fundraising performance
AvgCCommentRatioit, the average creator comment on time (i.e., NewBackeri,t-1), The interdependency
ratio of inactive campaigns in the same category, as between NewBacker and the extracted Update and
the instrument variable for CCommentRatioit. Comment topics may lead to biased coefficient esti-
AvgCCommentRatioit and CCommentRatioit are mates and standard errors. In the current economics
and business literature applying LDA models, the Table 4 Herding, Campaign Listing Attributes, and Backer Contribution
possible endogeneity issue has not been dealt with, First-day
Full model (with
and we aim to tackle this issue in our study. moderating effects) analysis (main
To solve the problem, we select instruments for all effects only)
the endogenous topics variables in (3). Specifically, DV= logNewBacker (1) OLS (2) 2SLS (3)
we derive AvgUpdateTopicjit (j = 1, 2, 3, and 4), the (1): logLagCumulative 0.5152*** 2.5443***
mean of cumulative topic membership probabilities Backer (0.0751) (0.3201)
across all update documents of inactive campaigns (1) × logLenDescription 0.0007 −0.1113***
(0.0061) (0.0188)
that belong to the same category as campaign i before (1) × log#Pictures −0.0041 −0.1098***
i is posted, and use it as the instrument for Cumula- (0.0139) (0.0193)
tiveUpdateTopicjit. The rationale behind this instru- (1) × log#RewardTier −0.0864*** −0.4179***
ment variable selection is that AvgUpdateTopicjit and (0.0264) (0.0558)
CumulativeUpdateTopicjit are correlated because the (1) × logCreatorTenure −0.0730*** −0.1605***
(0.0078) (0.0134)
former provides useful information about the level of logLenDescription 0.0795*
other creators’ update topic selection and can be used (0.0479)
as an important reference for a focal creator to deter- log#Pictures 0.0652**
mine her own update activities. Nonetheless, AvgUp- (0.0298)
dateTopicjit is unlikely to be correlated with the log#RewardTier 0.2905***
(0.0653)
unobservable error term of a focal campaign since its logCreatorTenure 0.9086***
value cannot be determined by the creator of the cam- (0.1654)
paign being instrumented. We also construct the logDaysElasped −1.3314*** −1.5713***
instrument for CumulativeCommentTopicjit (j = 1, 2, 2
(0.0376) (0.0424)
and 3) by following the same notion. All the proposed logDaysElasped 0.2212*** 0.2802***
(0.0072) (0.0097)
instruments reject the weak instrument variable log#CompetingCampaign −0.0479** −0.0676*** 0.0239
statistic tests (the KP Wald F-statistic is 94.070, which (0.0205) (0.0112) (0.0373)
is much higher than the critical value (11.510) for the log#RepeatedBacker 0.2179***
Stock-Yogo weak instrument variable test evaluated (0.0166)
at the 10% maximal IV relative bias) and satisfy the Number of Observation 111,379 111,379 3,305
Mean Squared Error/R2 0.497/0.452 0.390 1.260/0.180
exogeneity statistic tests (the Hansen’s J statistic is
1.189 and its p = 0.276). Significance: ***p < 0.01, **p < 0.05, *p < 0.1
5. Results
5.1. Campaign Listing Attributes results from two different analyses suggest that favor-
Table 4 reports the estimation results of Equation (1), able listing attributes bring in more new backers but
with clustered standard errors at the campaign reduce successors’ reliance on the predecessors’ fund-
level.16 From columns (1) and (2), we can see that the ing decisions. Therefore, H1 is supported.
results from OLS and 2SLS methods are largely con-
sistent. Since the 2SLS method produces a better fit 5.2. Communicative Messages
(with a lower mean square error), we focus our dis- Next, we proceed to uncover both the quantitative
cussion on the estimated coefficients reported in col- (i.e., frequency) and qualitative (i.e., content) effects
umn (2). of communicative messages on backer contribution.
The main effect of logLagCumulativeBacker is statis- Table 5 reports the results from the analysis on
tically significant and positive, confirming the exis- message frequency specified in Equation (2). From
tence of backer herding in our context. The interaction column (1), we observe that the main effects of
terms between campaign listing attributes and the logCumulativeUpdate and CCommentRatio are both
herding measure are all negative and significant. This positive and significant. This suggests that the fre-
result suggests that subsequent backers do not just quency of campaign updates and creator comments
blindly mimic preceding peers’ funding decisions; has a positive effect on attracting new backers on the
they do pay attention to observable listing attributes next day, perhaps because the improved information
and use such information cues to moderate their disclosure mitigates potential backers’ quality uncer-
herding momentum toward predecessors. A cross- tainty, increasing their willingness to contribute.
check between columns (2) and (3) further reveals that Moreover, we observe that the interactive effects asso-
all of the four interaction terms take the opposite ciated with the two frequency measures both take a
signs of their corresponding main effects obtained negative sign, showing that successors tend to rely
from the first-day regression. Taken together, the less on predecessors’ funding decisions as the
Table 5 Effect of the Frequency of Update and Comment Messages decisions when less informative content is provided
DV= logNewBacker Estimates Std. Dev.
in the updates. Once more informative content is pro-
vided (as in update topics 2–4), subsequent backers
(1): logLagCumulativeBacker 4.3042*** (1.1453)
logCumulativeUpdate 0.3704** (0.1825)
will pay less attention to the quality signals derived
CCommentRatio 0.7980*** (0.2395) from the crowd.
(1) × logCumulativeUpdate −0.1350*** (0.0350) For the comment topics, we find that the estimated
(1) × CCommentRatio −0.2299*** (0.0549) coefficient of CumulativeCommentTopic1 (i.e., Backer
(1) × logLenDescription −0.2369*** (0.0698) Compliments) is positive, while its interaction term
(1) × log#Pictures −0.1998*** (0.0636)
(1) × log#RewardTier −0.5751*** (0.1739)
with logLagCumulativeBacker is negative. In other
(1) × logCreatorTenure −0.2034*** (0.0437) words, compliments made by other backers serve as
logDaysElasped −1.2802*** (0.0904) persuasive testimonials in attracting new backers.
logDaysElasped 2 0.2327*** (0.0237) However, these messages attenuate the herding effect
log#CompetingCampaign −0.1326*** (0.0145) since these compliments might be a substitute, at least
Number of Observation 1113,79
Mean Squared Error 0.377
partially, for the informational value of the herd.
Moreover, we found that CumulativeCommentTopic2
Significance: ***p < 0.01, **p < 0.05 (i.e., Fundraising Reminders) dampens potential
backers’ contributions, which could arise when exces-
sive and non-informative reminders are perceived by
cumulative number of communicative messages prospective backers as being “desperate” or annoy-
increases. This implies that the additional information ing. These reminder comments accentuate the herd-
conveyed in communicative messages attenuates the ing effect of quality signals. Lastly,
informational value of the quality signals derived CumulativeCommentTopic3 (i.e., General Q&A) is
from preceding backers, weakening the magnitude of found to have a negative main effect and positive
the herding effect. Therefore, H2 is supported.17 interaction effect with the herding variable on poten-
Table 6 reports the results from the analysis on tial backers. This happens perhaps because many of
message content specified in Equation (3). The esti- these comments addressed logistic issues (e.g., ship-
mated coefficient of logLagCumulativeBacker remains ping time, shipping fees) encountered by preceding
positive and significant (p < 0.01) and the coefficients peers, which could be seen as being informative but a
of other variables are largely consistent with their bad quality signal by prospective backers.
counterparts reported in Tables 4 and 5. For the con- Overall, the informative content in both updates
tent variables of creator updates, the estimate of and comments have positive and significant impacts
CumulativeUpdateTopic1 (i.e., Fundraising progress & on new backers, and they always attenuate the infor-
encouragements) is negative and significant mational value of previous funding transactions,
(p < 0.01), while the estimates of Cumula- weakening the magnitude of herding among backers.
tiveUpdateTopic2 (i.e., Campaign success announce- However, the non-informative content in updates and
ments), CumulativeUpdateTopic3 (Campaign-related comments is found to have negative and significant
details), and CumulativeUpdateTopic4 (Campaign kick- impacts on new backers, and they always strengthen
off announcements) are positive and significant. the momentum of herding among backers. Therefore,
These results suggest that backers respond negatively our H3 is supported.
to updates that merely report fundraising progress
and ask for more support; this negative reaction
might arise because fundraising progress is already
6. Robustness Checks
displayed in real-time on the campaign page, and 6.1. Alternative Herding Measure
such updates contain no new information to potential In our main analysis, we investigate backers’ funding
backers. Consistent with our hypothesis, Cumula- behavior using the number of backers. As a robust-
tiveUpdateTopic3, which provides campaign-related ness check, we construct the funding amount as an
details, is found to be effective in encouraging backer alternative measure for herding (Jiang et al. 2018).
contributions, so are the kick-off and success Specifically, we use the new contribution amount (in
announcements. For their interactions with the herd- Chinese Yuan) campaign i receives on day t
ing variable, we find that the interaction between (logNewAmountit) as the dependent variable, and the
CumulativeUpdateTopic1 and herding is positive, cumulative amount (in Chinese Yuan) the same cam-
whereas the interactive effects between the other paign has raised until the previous day (logLagCumu-
three update content variables and herding are nega- lativeAmount) as the key covariate. We re-estimate
tive and significant. This is consistent with what we Equations (1)–(3) with endogeneity corrections and
found in the earlier models, suggesting that succes- report the new estimation results in Table 7. The esti-
sors tend to rely more on predecessors’ funding mated coefficients for logLagCumulativeAmount from
Table 6 Effect of the Content of Update and Comment Messages
DV = logNewBacker Topic labels Estimates Std. Dev.

CumulativeUpdateTopic1 Fundraising progress & encouragements −0.0685*** (0.0262)
CumulativeUpdateTopic2 Campaign success announcements 1.5334*** (0.5468)
CumulativeUpdateTopic3 Campaign-related details 0.0645** (0.0303)
CumulativeUpdateTopic4 Campaign kick-off announcements 1.0356*** (0.0880)
CumulativeCommentTopic1 Backer compliments 0.0221*** (0.0063)
CumulativeCommentTopic2 Fundraising reminders −0.0241*** (0.3388)
CumulativeCommentTopic3 General Q&A −0.0179*** (0.0054)
(1) × CumulativeUpdateTopic1 Fundraising progress & encouragements 0.0126** (0.0050)
(1) × CumulativeUpdateTopic2 Campaign success announcements −0.3279** (0.1332)
(1) × CumulativeUpdateTopic3 Campaign-related details −0.0120** (0.0057)
(1) × CumulativeUpdateTopic4 Campaign kick-off announcements −0.1808*** (0.0136)
(1) × CumulativeCommentTopic1 Backer compliments −0.0033*** (0.0009)
(1) × CumulativeCommentTopic2 Fundraising reminders 0.0026** (0.0011)
(1) × CumulativeCommentTopic3 General Q&A 0.0029*** (0.0010)
(1) × logLenDescription −0.0466*** (0.0121)
(1) × log#Pictures −0.0345** (0.0139)
(1) × log#RewardTier −0.1765*** (0.0333)
(1) × logCreatorTenure −0.0875*** (0.0083)
logDaysElasped −1.3563*** (0.0297)
logDaysElasped 2 0.2293*** (0.0063)
log#CompetingCampaign −0.0849*** (0.0109)
Number of Observation 111,379
Significance: ***p < 0.01, **p < 0.05
the three models are all positive and significant at Table 8, from which we can see that the estimated
0.01 level, suggesting that campaigns that have coefficients remain qualitatively consistent. We also
received a larger amount of funding on a given day conduct more robustness checks and the results can
attract more funding on the following day. The esti- be found in the Online Appendix.
mated coefficients for all interaction terms of our
interest are found to be largely consistent with their
counterparts obtained from the main analysis.
7. Conclusion
In this study, we study the effects of creator commu-
6.2. Alternative Instruments for Content Analysis nicative messages, specifically updates and com-
Next, we consider an alternative set of instrument ments, on backer contributions in crowdfunding
variables for the endogenous variables. Specifically, platforms. Given the prevalence of information asym-
we derive the average of the cumulative topic mem- metry in crowdfunding campaigns, we find when
bership probability across all updates of campaigns there are a larger number of predecessor backers to a
that were active during campaign i’s fundraising per- given campaign, more new backers will follow the
iod and were belonged to any category other than i’s herd and make contributions. This positive correla-
(ActiveAvgUpdateTopicjit, j = 1, 2, 3, and 4), and use it tion between the number of predecessor backers and
as an alternative instrument for Cumula- new backers shows the information value of prede-
tiveUpdateTopicjit. The rationale behind is that Acti- cessor backers’ behavior. In the meantime, we find
veAvgUpdateTopicjit and CumulativeUpdateTopicjit are backers do pay attention to other campaign listing
correlated because the former provides useful infor- information as well as the creator’s tenure. These
mation about other creators’ choice of update topics; campaign- and creator-related attributes provide
however, ActiveAvgUpdateTopicjit is unlikely to be cor- additional information to potential backers and
related with the unobservable error term of the focal reduce their reliance on the information from the
campaign, since its value cannot be determined by herd. More importantly, we find communicative mes-
the creator of the campaign being instrumented. Fol- sages, which are made available by the crowdfunding
lowing the same logic, we construct an alternative platforms and used by creators, are effective in
instrument for CumulativeCommentTopicjit (j = 1, 2, attracting new contributions, especially when sent in
and 3). The newly constructed instruments pass the larger amounts and when the information contained
weak IV tests and satisfy the exogeneity tests. The in these messages complement the information from
results based on the new instruments are reported in other sources, such as predecessor backers’ herding,
Table 7 Robustness Check 1: Alternative Herding Measure
Models
DV= logNewAmount/logNewBacker Equation (1) Equation (2) Equation (3)

(1): logLagCumulativeAmount 5.5729*** 6.9575*** 0.7714***
(0.9462) (2.5392) (0.1183)
logCumulativeUpdate 4.5336*
(2.4385)
CCommentRatio 4.8479***
(1.6085)
(1) × logCumulativeUpdate −0.5176**
(0.2133)
(1) × CCommentRatio −0.5278***
(0.1561)
CumulativeUpdateTopic1 −0.0679***
(0.0263)
CumulativeUpdateTopic2 0.1024***
(0.0071)
(0.0242)
(0.0770)
CumulativeCommentTopic1 0.0116**
(0.0054)
CumulativeCommentTopic2 −0.0319***
(0.0062)
CumulativeCommentTopic3 −0.0296***
(0.0057)
(1) × CumulativeUpdateTopic1 0.0065***
(0.0016)
(1) × CumulativeUpdateTopic2 −0.0181***
(0.0056)
(0.0024)
(0.0073)
(1) × CumulativeCommentTopic1 −0.0012***
(0.0004)
(1) × CumulativeCommentTopic2 0.0021***
(0.0005)
(1) × CumulativeCommentTopic3 0.0028***
(0.0005)
(1) × logLenDescription −0.3118*** −0.4177*** −0.0407***
(0.0606) (0.1587) (0.0077)
(1) × log#Pictures −0.3490*** −0.3853** −0.0386***
(0.0647) (0.1676) (0.0078)
(1) × log#RewardTier −0.7845*** −0.9211** −0.0964***
(0.1388) (0.3597) (0.0161)
(1) × logCreatorTenure −0.2277*** −0.2395*** −0.0332***
(0.0327) (0.0888) (0.0040)
logDaysElasped −4.5607*** −4.9627*** −1.3646***
(0.1639) (0.3651) (0.0228)
logDaysElasped2 0.8307*** 0.9138*** 0.2283***
(0.0449) (0.1106) (0.0058)
log#CompetingCampaign −0.2415*** −0.4731*** −0.0728***
(0.0436) (0.0679) (0.0109)
# of observations 111,379 111,379 111,379
Mean Squared Error 5.0739 5.5617 0.3712
Significance: ***p < 0.01, **p < 0.05, *p < 0.1
of the campaign. We find a larger amount of updates of updates and comments, as measured by their con-
and comments sent by the creators helps attract new tent, have different effects on attracting backers, and
backers but attenuates backers’ herding momentum the effect mainly depends on whether the content of
toward predecessors. In the meantime, different types the update or comment compliments backers’
Table 8 Robustness Check 2: Alternative Instrument Variables for for their daily operations. Specifically, when using the
Content Measures communication tools designed by the crowdfunding
DV= logNewBacker Coefficient estimates Std. Error platforms, creators could post updates of the cam-
paigns and also respond to backer comments
CumulativeUpdateTopic1 −0.0685*** (0.0226) throughout the fundraising period since they do help
CumulativeUpdateTopic2 1.5200*** (0.5469) attract new backers and reduce the informational
CumulativeUpdateTopic3 0.0644** (0.0302) value of the decisions made by preceding backers.
CumulativeUpdateTopic4 1.0404*** (0.0880) However, creators need to be careful when selecting
CumulativeCommentTopic1 0.0220*** (0.0063)
CumulativeCommentTopic2 −0.0238*** (0.0076)
the content of these messages: updates on campaign-
CumulativeCommentTopic3 −0.0180*** (0.0054) related details and comments to backer compliments
(1) × CumulativeUpdateTopic1 0.0126** (0.0050) are found to encourage new backers, so are the cam-
(1) × CumulativeUpdateTopic2 −0.3248** (0.1332) paign kick-off and success announcements. Constant
(1) × CumulativeUpdateTopic3 −0.0120** (0.0056) reminders from creators to ask for more contributions
(1) × CumulativeUpdateTopic4 −0.1826*** (0.0136)
(1) × CumulativeCommentTopic1 −0.0033*** (0.0009)
in either updates or comments would discourage
(1) × CumulativeCommentTopic2 0.0025** (0.0011) backers. Logistic difficulties of the campaigns, when
(1) × CumulativeCommentTopic3 0.0030*** (0.0010) commented on by the backers, also discourage poten-
(1) × logLenDescription −0.0490*** (0.0122) tial backers, and creators need to find ways to miti-
(1) × log#Pictures −0.0366*** (0.0140) gate their impacts. For the managers of the
(1) × log#RewardTier −0.1829*** (0.0335)
(1) × logCreatorTenure −0.0891*** (0.0083)
crowdfunding platforms, our findings can guide them
logDaysElasped −1.3604*** (0.0299) to design campaign features that allow creators to
logDaysElasped 2 0.2304*** (0.0063) provide information to potential backers. One poten-
log#CompetingCampaign −0.0858*** (0.0110) tial new feature that the platform could add is to
Number of Observation 111,379 allow creators to have some kind of real-time chat
functions with backers since some previous research
Significance: ***p < 0.01, **p < 0.05. found the live-chat feature could reduce the amount
of negative information posted by consumers on the
seller page (Tan et al. 2019).
information signals of the campaign quality from This study is subject to limitations. First, the plat-
other sources. form in our analysis is a classic example of “All-or-
Our study brings in several new insights into the Nothing” (AON) reward-based crowdfunding plat-
academic literature on crowdfunding. Our study is form, where creators would receive nothing if their
the first attempt that focuses on the economic campaigns did not reach the preannounced funding
effects of creators’ communicative messages on new targets. There are also platforms adopting “Keep-It-
backers’ contribution decisions as well as their All” (KIA) mechanism, in which creators are enti-
herding behavior in online crowdfunding platforms. tled to the total amount raised, regardless of
Our study complements Xu et al. (2014)’s study of whether they meet the funding targets. Compared
creator updates in crowdfunding markets by study- with AON, KIA shifts the risk to potential backers
ing this problem in a panel data setting, accounting when an underfunded campaign continues to seek
for the existence of other information signals (espe- money on the platform. Also, due to data limitation,
cially herding), and, importantly, correcting the we only focus on backers’ observation learning from
endogeneity biases of update and comment esti- campaign listings attributes (e.g., AmountRequested,
mates. This study also extends our knowledge in #RewardTiers, #Pictures) and creator’s characteristics
backers’ herding behavior in online crowdfunding (i.e., CreatorTenure); we do not consider backers’
markets by communicative messages, designed by information search behavior outside the crowdfund-
the platform and utilized by the creators, can ing platform. For example, creators can engage
indeed help potential backers to rely less on other potential backers in social media through marketing
backers’ behavior by obtaining information from activities. In future research, our model can be
these messages. Overall, this research suggests that extended to incorporate this type of information
crowdfunding platforms and creators deliver values when it becomes available. Finally, additional attitu-
by utilizing these communicative message features dinal information (e.g., backers’ credibility studied
in the platform. in Kim and Viswanathan (2019) can be collected to
Managerially, this study provides several practical improve our understanding of contribution behavior
implications for creators and platform managers in in the crowdfunding market. To conclude, we
the online crowdfunding market. For creators, under- believe how managers could design more efficient
standing backers’ herding behavior and its underly- service operation strategies is a fruitful area that
ing behavioral mechanism are strategically important warrants more research.
significant at the 0.01 level, suggesting that the fixed-effect

Acknowledgments specification is more statistically appropriate.
14
The authors thank the Department Editor Subodha Kumar, Our data support the validity of the proxy variable. The
the Senior Editor, and three anonymous reviewers for their Pearson correlation between the proxy variable and the
constructive suggestions and comments throughout the number of new backers on the first day is 0.234, signifi-
review process. This research was supported by the cant at 5% level.
15
National Natural Science Foundation of China (Grants Both logAvgNumBackerit and logNumCampaignInactiveit
71701119). The authors contribute equally and are listed are correlated with logCumulativeBackerit-1, as these two
reverse alphabetically. variables reflect the potential backer size and the category-
level popularity of a focal campaign, respectively. On the
other hand, they are uncorrelated with the error term
Notes
because they are market-level measures and hence do not
1
We thank the senior editor for this valuable suggestion. reflect the private demand information known by the cre-
2
Due to the space limit, we only review the prior work ator of the focal campaign being instrumented.
16
that is most related to our study. An extensive list of the Clustered standard errors are used in the estimation to
crowdfunding studies in the business literature is pro- allow for any arbitrary form of serial correlation within a
vided in Online Appendix A. campaign. In our robustness check section, we also esti-
3
We do not observe creator crowdfunding experience from mate the models with two-way clustered errors (campaign
our data, and thus use tenure as a proxy for experience. and month level) and found the significance levels remain
4
In our framework, the favorable campaign (campaign A) consistent (see Online Appendix D).
17
could be associated with a lengthier description, more pic- We also estimate the first-day regression model and find
tures uploaded, more reward tiers, or a creator with robust results. The main effects of the two frequency mea-
longer tenure. sures and the four listing attributes are all positive and
5
This statement is grounded on our previous hypotheses significant. Results are available upon request.
that favorable listing attributes will attract more new back-
ers. Note that those hypotheses are supported by our
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Vol. 0, No. 0, xxxx–xxxx 2021, pp. 1–18 DOI 10.1111/poms.

Building the Momentum: Information Disclosure and

Yi-Chun (Chad) Ho*

update section on a campaign’s page (Xu et al. 2014).

Notes: Statistics are computed using raw values.

the highest success rates (79.80% and 78.79%),

Table 3 Summary Statistics of Main Variables

Variable name Description Max Min Mean Std. Dev.

Notes: Statistics are computed using raw values.

Table 6 Effect of the Content of Update and Comment Messages

DV = logNewBacker Topic labels Estimates Std. Dev.

Significance: *p < 0.01, p < 0.05

Table 7 Robustness Check 1: Alternative Herding Measure

DV= logNewAmount/logNewBacker Equation (1) Equation (2) Equation (3)

Significance: p < 0.01, p < 0.05, p < 0.1

significant at the 0.01 level, suggesting that the fixed-effect

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