The Ecology of Crowdfunding: Global Bias Welcome in the Geography of Investments

Abstract

This research investigates the global online appeal of crowdfunding —an open distributed financing mechanism enabled by the crowds that offers an alternative to traditional financial institutions, centralized and closed. An extensive body of literature posits the prevalence of the home bias or local bias anomaly in the geography of investments (e.g. Huberman 2001). However, much of the extant literature is based on equity-based studies within a single firm or a single country, within the realm of traditional financial institutions. Using a rich database of 390 crowdfunding firms, spanning 40 countries, and three financial modalities —participation (equity), lending, and donations— we revisit the theoretical issue of home bias in investments. Our results suggest the parallel existence of global bias, in investments with relatively low risk and spot pecuniary relationship between investor and beneficiary. We do reconfirm the existence of local bias, in investments with comparatively high risk and lasting pecuniary relationship between investor and beneficiary. This study simultaneously unveils both biases in different financing modalities in crowdfunding. From a theoretical perspective these findings contribute to theory regarding the geography of investments, by introducing the “global bias”, disentangling it from the “local bias” through context. For practitioners these findings have international policy implications. The emergence of a parallel global virtual capitalist system is fueled by the perceived opportunity behind the nascent “global bias”. The virtual system discussed here extends beyond the realm of traditional organization to make a real impact on the lives of millions of individuals across national borders.