The Role of Provision Points in Online Crowdfunding

Gordon Burtch, Yili Hong, De Liu

Research output: Contribution to journalArticle

12 Scopus citations

Abstract

Extending recent work on market mechanisms in new fintech offerings, we explore the implications of a key mechanism in online crowdfunding-the use of a provision point. Under a provision point mechanism (otherwise known as all-or-nothing or fixed fundraising scheme), the fundraiser, typically an entrepreneur, only receives funds pledged toward his or her campaign if a preregistered fundraising target is met, rather than keeping everything that is raised. Provision points may weaken contributors' reliance on prior capital accumulation for judging a project's potential for success, by eliminating their concerns about a partial fundraising outcome and by signaling the project or entrepreneur's quality. Yet, provision points may also induce attention to prior capital accumulation, because the materialization of one person's contribution depends explicitly on sufficient contributions from others (a network effect). We assess this tension empirically, leveraging proprietary data from a leading crowdfunding platform that allows entrepreneurs to opt into a provision point. We consider the effects of prior capital accumulation on visitors' conversion and contribution decisions, and the moderating influence of a provision point. We find that provision points weaken the association between prior capital accumulation and visitor contribution, implying a reduction in potential herd behavior.

Original languageEnglish (US)
Pages (from-to)117-144
Number of pages28
JournalJournal of Management Information Systems
Volume35
Issue number1
DOIs
StatePublished - Jan 2 2018

ASJC Scopus subject areas

  • Management Information Systems
  • Computer Science Applications
  • Management Science and Operations Research
  • Information Systems and Management

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