Reward-based crowdfunding is an emerging financing channel for entrepreneurs to raise money for their innovative projects. How to screen the crowdfunding projects is critical for crowdfunding platform, project founder, and potential backers. This study aims to investigate whether backers’ word-of-mouth (WOM) is a valuable input to generate collective intelligence for project screening. Specially, we answer three questions. First, is backers’ WOM an effective signal for implementation performance of crowdfunding projects? Second, how do the WOM help screen projects during the fund-raising process? Third, which kind of comments (positive or negative) is more effective in screening crowdfunding projects? Research hypotheses were developed based on theories of collective intelligence and WOM communication. Using a cross section dataset and a panel dataset, we get the following findings. First, backers’ negative WOM can effectively predict project implementation performance, however positive WOM does not have that prediction power. The prediction power of positive and negative WOM differs significantly. One possible reason is that negative WOM does contain more information of project quality. Second, project with more accumulative negative WOM tend to attract fewer subsequent backers. However, accumulative positive WOM is not helpful for attracting more potential backers. We conclude that negative WOM is useful for project screening project, because it is a signal of project quality, and meanwhile it could prevent backers make subsequent investments.
Zheng, Haichao; Qi, Zihao; Luo, Xin; Liu, Jiafen; and Li, Liting, "The Value of Backers’ Word-of-Mouth in Screening Crowdfunding Projects: An Empirical Investigation" (2016). ICEB 2016 Proceedings. 79.