Abstract
We investigate the role of community-level social capital in individuals’ investment decisions in equity crowdfunding. We exploit a hand-collected dataset of individual investments pledged to successful campaigns in Italy between 2014 and 2018. Individuals born in provinces with high social capital invest more substantially in riskier campaigns. Contrary to inborn social capital, social capital in the province where investors live has no impact. This evidence survives several robustness checks and highlights the crucial role of an individual's cultural traits in fostering investment in equity crowdfunding.
Plain English Summary
Do characteristics of investors’ birthplace shape behavior? We study community-level social capital and investments in equity crowdfunding and show that cultural factors, rather than the environment, are correlated with investment choices. People born or living in high social capital areas are more likely to trust others, either because of higher cooperative values and beliefs stowed in their cultural makeup, or because of the influence of the surrounding environment. We find that higher inborn social capital of investors results in higher amounts pledged to riskier campaigns, while conditions in their living place have no impact. By unveiling such relationship, we find interesting implications for entrepreneurs and managers of crowdfunding platforms. Founders of risky ventures should target pledgers born in districts where local social capital is more prominent. Platforms’ managers should support entrepreneurs in following this strategy and consider existing clients' place of birth in marketing efforts to maximize the probability of success.
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Data Availability
Raw data were collected on platforms' web sites, from Registro delle Imprese and Aida-Bvd. Derived data supporting the findings of this study are available from the corresponding author on request.
Notes
Unsuccessful campaigns attract a significantly smaller number of investors. There were 92 unsuccessful equity crowdfunding campaigns in Italy initiated between 2014 and 2018. We do not know who the pledgers were (or whether they were individual investors or firms), but these campaigns were supported by 11 pledges, on average, against 65 (= 12,161/188) for successful campaigns. Moreover, pledges to unsuccessful campaigns can be placed only to attract other investors and might be withdrawn strategically before the end of the campaign (Meoli and Vismara, 2021). Therefore, using pledges to unsuccessful campaigns leads to the risk of considering pledges that would never become real.
Table 14 in the appendix provides a detailed description of the proxies and how they are constructed, along with the data source.
We weight 2003 waste recycling by the share of the population in each province that was actually covered by sorted waste collection services, as in Galardo et al. (2019).
In the robustness section later in the paper, we also use each of these five variables in isolation. In spite of an expected lower statistical significance, this exercise shows that the main results of the paper continue to hold.
Figure 2 in the Appendix shows the provincial distribution for each of the five proxies.
We recognize that for some firms (e.g., newly established ventures), information on profitability might not be accessible when the campaign is launched. We discuss this matter later in the paper, and we check the robustness of our results to a more restrictive definition of Unprofitable.
The number of observations is not exactly the same in each of the two subsamples, as CSC is defined at the provincial level, and all investments made by investors born in the same province share the same level of CSC.
All results hold unchanged excluding follow-on campaigns.
We repeat our regressions in the subsample of first pledgers. All results continue to hold.
In untabulated results, we repeat the analysis in Table 7 only for a subsample of 2246 investments made by movers. The results continue to hold and are available upon request.
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Acknowledgements
We would like to thank the Editor (Silvio Vismara) and two anonymous reviewers for their constructive comments, which greatly improved the paper. We also thank Emanuele Bajo, Mascia Bedendo, Marco Bigelli, Sabri Boubaker, Vincenzo Butticè, Douglas Cumming, Riccardo Fini, Ivo Jansen, Louis Murray, Raghavendra Rau, Sandro Sandri, the participants at the 2021 EFMA conference in Leeds, 2021 FEBS conference in Lille, 2021 IAFDS Doctoral Symposium, and 2022 research seminar at IAE Lyon School of Management for their insightful comments and suggestions. We also thank Matteo De Piccoli and Stefano Frenati for their excellent research assistance. All remaining errors or omissions are our responsibility. The Department of Management at the University of Bologna contributed to funding this research project ("MIUR Progetto Dipartimenti di Eccellenza").
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Appendix 1. Community-level social capital (CSC) proxies and index
Appendix 1. Community-level social capital (CSC) proxies and index
Distribution of CSC constituents. The Figure shows the geographical distribution of Turnout, Waste, Nonprofit, Volunteers, Satisfaction, along with CSC, by quintiles across Italian provinces. Darker areas correspond to higher levels of CSC (higher quintiles)
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Barbi, M., Febo, V. & Giudici, G. Community-level social capital and investment decisions in equity crowdfunding. Small Bus Econ 61, 1075–1110 (2023). https://doi.org/10.1007/s11187-022-00724-4
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DOI: https://doi.org/10.1007/s11187-022-00724-4