Reward-based crowdfunding is vital for entrepreneurs who cannot raise funds, but the failure rate to meet funding goals in reward-based crowdfunding is high. Consequently, entrepreneurs try to get backers’ attention and persuade them to pledge funds for their campaigns. Entrepreneurs can provide misleading information in their crowdfunding campaign descriptions, distorting the signals sent to backers. This paper examines how camouflage signals mitigate information asymmetry and its impact on the fundraising ability in reward-based crowdfunding.
The study examines Kickstarter crowdfunding campaigns (n = 100,522) using six established dictionaries for linguistic hedging as proxies for camouflage signals.
The results reveal a significant and varied impact of camouflage signals on mitigating information asymmetry and, consequently, on the performance of crowdfunding campaigns; these findings are robust to alternative, independent variables and different econometric techniques.
This study contributes to signalling theory literature through its novel study of camouflage signals. It also contributes to the reward-based crowdfunding literature and provides new insights into how camouflage signals mitigate information asymmetry, thereby persuading or deterring backers from pledging funds.
