Asymmetric and Contingent Value of Crowd Wisdom in Crowdfunding

This study investigates how platform risk indicators and the size of the active user base shape participation in lending-based crowdfunding (LCF) markets. A key distinction between LCF platforms and other two-sided markets is heightened uncertainty, which primarily stems from concerns about platform-level financial instability. To understand how participants from both sides of the platforms navigate such uncertainty, we develop a framework grounded in observational learning and cue diagnosticity, elucidating the roles of direct signals (i.e., platform-level risk indicators), indirect signals (i.e., the size of the active user base), and their interaction in driving platform growth. We uncover three key findings by analyzing user participation data from multiple LCF platforms. First, platform risk indicators demonstrate a nuanced influence on platform growth. Whereas high loan repayment rates and substantial registered capital attract users, elevated interest rates deter them. The latter pattern indicates that risk concerns outweigh return potentials, reinforcing the high-uncertainty nature of LCF markets. Second, user size effects manifest asymmetrically. Both sides exhibit same-side participation momentum, but cross-side effects flow unidirectionally from investors to borrowers, highlighting the critical informational role of the investor base size. Third, a significant interaction exists between direct and indirect signals: when the former indicate weak platform financial stability, users rely even more on the latter. This finding implies that user base size serves as an uncertainty-reduction cue, with its informational value contingent on the uncertainty levels conveyed by various risk indicators. We discuss theoretical contributions and managerial implications.

History: Xiaoquan (Michael) Zhang, Senior Editor; Yili (Kevin) Hong, Associate Editor.

Funding: This work was supported by National Natural Science Foundation of China [Grants 72325002, 72371149, 72421001, and 72271151].

Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2022.0631.