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Rational herding: Evidence from equity crowdfunding
Author(s)
Date Issued
2024
Journal
ISSN
0025-1747
1758-6070
Citation
Management Decision, 2024, vol. 62(3), pp. 1008-1029.
Type
Peer Reviewed Journal Article
Abstract
Purpose
This study explores whether herd behavior exists for equity crowdfunding investors in China and whether this herding is rational.
Design/methodology/approach
Based on signaling theory and social learning theory, two hypotheses were proposed. This study employed two approaches to collect data. First, this paper analyzed 3,041 investments on an equity crowdfunding platform in China using Python programming and built a panel data model. Second, based on a unique experiment design, this study conducted several relevant herd behavior simulation experiments.
Findings
We found that investors in the Chinese equity crowdfunding market exhibit herd behavior and that this herding is rational. Project attributes play a negative role in moderating the relationship between the current investment amount and cumulative investments. Experimental results further support our findings.
Originality/value
This study contributes to the emerging literature on herding in crowdfunding by focusing on equity crowdfunding in China. We are the first to explore whether Chinese equity crowdfunding investors exhibit rational herding behavior. The study is also original in applying social learning theory to equity crowdfunding and in using both actual crowdfunding campaigns and experimental approaches to collect data. This study has valuable implications to practice.
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