Reporting Frequency and Market Monitoring in Reward Crowdfunding Markets

Abstract

I study the role of voluntary reporting by the entrepreneur and monitoring by the funders in improving reward crowdfunding outcomes. Reward crowdfunding is a growing source of funding for entrepreneurs with limited access to traditional financing. The limited regulation in reward crowdfunding markets, however, leaves it up to the entrepreneur and the funders to solve their agency problems. Using data from one of the largest reward crowdfunding platforms, I find that entrepreneurs who provide less frequent voluntary updates experience more market monitoring related to product development. The entrepreneur responds to this monitoring by adjusting their announcement quality but not the update frequency. Finally, I find that funders who are responsive in their monitoring of the entrepreneur improve project outcomes. Taken together, my results support that voluntary reporting and market monitoring can work together to self-regulate reward crowdfunding markets.