Essays on signaling theory in crowdfunding

Ankita Kulkarni

doi:10.17918/00010479

Individual qualities, such as productivity, often remain unobservable to the audience, creating informational asymmetry between interacting parties. To convey these unobservable qualities and alleviate informational concerns, signals like educational attainment are used as indicators. While signaling theory originated in economics, due to its intuitive appeal, its applications extend beyond economics, and it provides insights into a wide range of business transactions. Signaling scholars have studied the effects of single signals and multiple signals, as well as the consequences of congruence and incongruence among signals in a set. Scholars have also investigated the congruence among intradimensional and interdimensional signals in a portfolio. However, less attention has been paid to the congruence or incongruence of the signals with the context in which they are emitted. The contextual (in)congruence of signals becomes even more important when multiple signals are simultaneously emitted, especially if some are congruent with the context and others are not. Additionally, contextual (in)congruence may occur at the signal set level, meaning that even if some signals are contextually relevant when considered in isolation, as a set, they may lack congruence with the context. In the first chapter of this dissertation, I review the trends and key papers across different domains such as economics, management, strategy and entrepreneurship. I then construct a matrix and introduce the concepts of "signal set internal congruence," defined as the compatibility of signals in a set, and "signal set external congruence," defined as the extent to which signals are congruent with the context in which they are emitted. I then theorize how internal and external congruence affect the effectiveness of signal sets. Building on the foundation of signal set external congruence (also known as contextual relevance), and by situating in the entrepreneurial crowdfunding context, the second chapter examines how the simultaneous emission of interdimensional signals of human capital and social cause impacts the success of crowdfunding campaigns. This chapter shows that audiences respond favorably to signals of human capital, such as work experience and prior entrepreneurial endeavors, as they effectively communicate the competencies of entrepreneurs. Conversely, signaling a strong commitment to social causes introduces competing demands, diminishing the entrepreneurs' ability to secure funding. Additionally, social cause signals have low relevance in the crowdfunding context, which results in low likelihood of securing funding. The joint emission of these signals complicates the task of balancing them, leading to audience distraction and confusion, ultimately harming the campaign's success. In the third chapter, this dissertation introduces the concept of category spanning, where an entrepreneur starts ventures in two or more distinct categories. Existing literature suggests that category spanning is associated with competence ambiguity and identity ambiguity. However, research has shown that when category spanning is conducted in contexts that value novelty such as entrepreneurship, it is not always detrimental to success. This chapter thus proposes a positive baseline effect of category spanning on funding success due to its congruence with the crowdfunding context. Yet, it is important to consider the entrepreneur's attributes as another important signal in the signal set. Certain signals, such as general human capital (transferable across contexts, usually gained through education and industry experience), alongside category spanning, highlights the underlying competence ambiguities associated with category spanning, thus harming campaign success. Conversely, when entrepreneurs emit specific human capital signals (non-transferable across contexts, usually acquired through domain-specific activities such as past entrepreneurial experience) alongside category spanning, they effectively reduce the competence ambiguity associated with category spanning, thereby increasing the chances of campaign success. Furthermore, this chapter demonstrates that emitting a category-spanning signal alongside heterogeneous human capital suggests that the entrepreneur may possess multiple identities. This exacerbates the identity ambiguity often associated with category-spanning activities, negatively impacting the success of crowdfunding campaigns. It is important to note that, like category spanning signal, general, specific and heterogeneous human capital are all independently effective and have a positive effect on crowdfunding success. Thus, this third chapter shows that even when signals are individually relevant in a context, when they are emitted together as a portfolio, at the signal set level, they may not be contextually congruent. Overall, this dissertation advances signaling theory by emphasizing the importance of contextual congruence for signals to be effective.

Essays on signaling theory in crowdfunding

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Essays on signaling theory in crowdfunding

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