Mind Your Words, Mind Your Audience: Effect of Comprehension on Crowdfunding Success with Varying Language Complexity and Investment Timing

Abstract

Crowdfunding has emerged as an essential alternative financing channel in recent years. However, it is recognized that most investors in crowdfunding are laypeople with limited experience of investment and therefore have relatively weak ability of understanding complex project information. Consequently, crowdfunding project success depends heavily on proper management of language complexity in various stages of project information revelation. Unfortunately, previous studies on language complexity effect have no consistent conclusions, thus leaving an important research gap to be tackled. To renewal this line of research innovatively in the context of crowdfunding, we examine the time-varying effect of language complexity in various project stages. To reveal the underlying mechanism, we propose a dual-process framework of project information comprehension. We operationalize the comprehension process in crowdfunding as the interaction effect of language complexity measured by an innovative machine learning approach and investor experience proxied by investment timing. We lay a firm foundation of this research effort by examining the impacts of multiple relevant theories such as the elaboration likelihood model in the context of crowdfunding. We empirically examine the time-varying effect of language complexity and comprehension effect by employing a panel dataset collected from Kickstarter. Our findings confirm that the effect of language complexity on project performance changes as the project progresses, leading to a new strategic approach for crowdfunding management with respect to project information revelation. We also find that the impacts of textual linguistic factors (the central route signals) on investors will dominate at the high level of comprehension, and non-textual heuristic factors (peripheral route signals) will dominate at the low level of comprehension; this is an expansion of the elaboration likelihood model while applying it in the context of crowdfunding. We conclude by examining why our findings are of significant theoretical and practical importance.