Do Externality Affect Your Project? An Empirical Study of Reward-based Crowdfunding

Abstract

The connections among crowdfunding projects are considered important for entrepreneurial performance. This study focuses on the effect of externalities on the performance of reward-based crowdfunding projects. Based on the externality theory, we theorize and test the impacts of existing similar projects on the performance of new ones. We extend the source of externalities to projects that are similar to each other and consider three variables—the quantity, quality, and effort of these similar projects—which reflect the number, average performance, and average effort of similar projects, respectively. We also explore the time effects of these externalities. We examine a sample of 20,092 technology reward-based crowdfunding projects on Kickstarter from 2009 to 2018. We find that the quality of similar projects is positively related to project performance, whereas the quantity and effort are negatively related. Furthermore, the negative impacts of quantity and effort on project performance are weakened by the time interval, but the moderating effect of the time interval on the positive impact of quality is not supported. These findings have implications not only for policy and practice but also for research on entrepreneurial performance, externality theory, and crowdfunding strategy.