Trust, distrust, and crowdfunding: A study on perceptions of institutional mechanisms

Abstract

In the context of crowdfunding, funder behavior is still an emerging issue that needs to be further explored. Distrust has been claimed as a major deterrent to an individual becoming a funder (Gerber and Hui, 2016); however, the literature lacks empirical evidence. This study aims to gain insight into the importance of distrust compared to trust by analyzing the influence of individuals’ trust and distrust in founders (as a group), and trust and distrust in the intermediary on individuals’ investment behavior. Furthermore, based on institutional trust theory, the authors propose a unique set of institutional protective mechanisms (platform rules, monitoring, and pledging security) and analyze how an individual’s perception of each mechanism affects their trust and distrust in the founders and the intermediary. Additionally, building upon trust transference theory, the authors investigate whether trust or distrust in the intermediary affects an individual’s trust or distrust in founders respectively. Therefore, our findings provide new insights into how crowdfunding platforms influence individuals’ investment decisions, which ultimately affects platforms’ success. The authors discuss managerial and theoretical implications from the findings.