Good news from mass media induces more investments in the equity crowdfunding market
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Abstract
This study verifies the association between the text sentiment of news items and the value of capital investments in the equity crowdfunding market. It also analyzes the influence of geographic attributes on the investments made. Based on data for 736 investments made in different ventures in the largest equity crowdfunding platform in one of the main emerging markets, this study’s results indicate that the attributes of ventures can affect the amount of capital invested in them. In addition, published mass media news items that have a greater quantity of positive words can stimulate larger investments in these ventures. On the other hand, the geographic distance between the entrepreneur and the investor can negatively affect the value of these investments. These results are relevant since they can contribute to the definition of fundraising strategies on the part of entrepreneurs and platform managers.
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Felipe, I. J. dos S., Mendes-da-Silva, W., Ali, I., & Francisco, E. de R. (2023). Good news from mass media induces more investments in the equity crowdfunding market. Brazilian Administration Review, 20(1), e210083. https://doi.org/10.1590/1807-7692bar2023210083
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References
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Battaglia, F., Regoli, A., & Agnese, P. (2022). Do local innovation systems promote successful equity crowdfunding campaigns? Evidence from Italy. Finance Research Letters, 48, 102932. https://doi.org/10.1016/j.frl.2022.102932
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Belleflamme, P., Lambert, T., & Schwienbacher, A. (2014). Crowdfunding: Tapping the right crowd. Journal of Business Venturing, 29(5), 585-609. https://doi.org/10.1016/j.jbusvent.2013.07.003
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Blaseg, D., Cumming, D., & Koetter, M. (2021). Equity crowdfunding: High-quality or low-quality entrepreneurs? Entrepreneurship Theory and Practice, 45(3), 505-530. https://doi.org/10.1177/1042258719899427
Block, J. H., Colombo, M. G., Cumming, D. J., & Vismara, S. (2018). New players in entrepreneurial finance and why they are there. Small Business Economics, 50(2), 239-250. https://www.jstor.org/stable/44697250
Breznitz, S. M., & Noonan, D. S. (2020). Crowdfunding in a not-so-flat world. Journal of Economic Geography, 20(4), 1069-1092. https://doi.org/10.1093/jeg/lbaa008
Chan, S. W., & Chong, M. W. (2017). Sentiment analysis in financial texts. Decision Support Systems, 94, 53-64. https://doi.org/10.1016/j.dss.2016.10.006
Chen, H., Gompers, P., Kovner, A., & Lerner, J. (2010). Buy local? The geography of venture capital. Journal of Urban Economics, 67(1), 90-102. https://doi.org/10.1016/j.jue.2009.09.013
Clarke, S. (2016). Wisdom and learning: Equity crowdfunding’s role in reducing information asymmetries. Proceedings of the 76th Annual Meeting of the Academy of Management, Anaheim, California, USA.
Colombo, M. G., Franzoni, C., & Rossi-Lamastra, C. (2015). Internal social capital and the attraction of early contributions in crowdfunding. Entrepreneurship Theory and Practice, 39(1), 75-100. https://doi.org/10.1111/etap.12118
Courtney, C., Dutta, S., & Li, Y. (2017). Resolving information asymmetry: Signaling, endorsement, and crowdfunding success. Entrepreneurship Theory and Practice, 41(2), 265-290. https://doi.org/10.1111/etap.12267
Coval, J. D., & Moskowitz, T. J. (1999). Home bias at home: Local equity preference in domestic portfolios. The Journal of Finance, 54(6), 2045-2073. https://doi.org/10.1111/0022-1082.00181
Cumming, D., Meoli, M., & Vismara, S. (2021a). Does equity crowdfunding democratize entrepreneurial finance? Small Business Economics, 56(2), 533-552. https://doi.org/10.1007/s11187-019-00188-z
Cumming, D. J., Vanacker, T., & Zahra, S. A. (2021b). Equity crowdfunding and governance: Toward an integrative model and research agenda. Academy of Management Perspectives, 35(1), 69-95. https://doi.org/10.5465/amp.2017.0208
Estrin, S., Gozman, D., & Khavul, S. (2018). The evolution and adoption of equity crowdfunding: Entrepreneur and investor entry into a new market. Small Business Economics, 51(2), 425-439. https://doi.org/10.1007/s11187-018-0009-5
Fama, E. F. (1991). Efficient capital markets: II. The Journal of Finance, 46(5), 1575-1617. https://doi.org/10.1111/j.1540-6261.1991.tb04636.x
Felipe, I. J. D. S., & Ferreira, B. C. F. (2020). Determinants of the success of equity crowdfunding campaigns. Revista Contabilidade & Finanças, 31(84), 560-573. https://doi.org/10.1590/1808-057x202010460
Fisher, I. E., Garnsey, M. R., & Hughes, M. E. (2016). Natural language processing in accounting, auditing and finance: A synthesis of the literature with a roadmap for future research. Intelligent Systems in Accounting, Finance and Management, 23(3), 157-214. https://doi.org/10.1002/isaf.1386
Florida, R. (2002). The economic geography of talent. Annals of the Association of American Geographers, 92(4), 743-755. https://doi.org/10.1111/1467-8306.00314
Foster, K. A., Smith, R. J., Bell, B. A., & Shaw, T. C. (2019). Testing the importance of geographic distance for social capital resources. Urban Affairs Review, 55(1), 231-256. https://doi.org/10.1177/1078087417714895
Greenberg, J., & Mollick, E. R. (2014). Leaning in or leaning on? Gender, homophily, and activism in crowdfunding. Academy of Management Proceedings, 15(1). https://doi.org/10.5465/ambpp.2015.18365abstract
Griffin, J. M., Hirschey, N. H., & Kelly, P. J. (2011). How important is the financial media in global markets? The Review of Financial Studies, 24(12), 3941-3992. https://www.jstor.org/stable/41302005
Heckman, J. (1979). Sample selection bias as a specification error. Econometrica, 47(1), 153–161. https://doi.org/10.2307/1912352
Hendershott, T., Livdan, D., & Schürhoff, N. (2015). Are institutions informed about news? Journal of Financial Economics, 117(2), 249-287. https://doi.org/10.1016/j.jfineco.2015.03.007
Hirshleifer, D., Lim, S. S., & Teoh, S. H. (2009). Driven to distraction: Extraneous events and underreaction to earnings news. The Journal of Finance, 64(5), 2289-2325. https://doi.org/10.1111/j.1540-6261.2009.01501.x
Hong, H., Torous, W., & Valkanov, R. (2007). Do industries lead stock markets? Journal of Financial Economics, 83(2), 367-396. https://doi.org/10.1016/j.jfineco.2005.09.010
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