Budget Disclosure in Crowdfunding: Information Asymmetry and Cost Transparency
Manufacturing & Service Operations Management
Received: August 2, 2022
Accepted: September 5, 2024
Published Online: December 30, 2024
Research Team
Wayne Fu
College of Business, University of Michigan, Dearborn, U.S.
Guangzhi Shang
College of Business, Florida State University, U.S.
Xun (Bruce) Tong
Faculty of Business and Economics, University of Groningen, Netherlands
Research Background
Crowdfunding, as an emerging financing method, provides entrepreneurs with flexible funding sources, especially when traditional financing channels are limited. However, the issue of information asymmetry on crowdfunding platforms poses numerous challenges for supporters when evaluating projects. This uncertainty may weaken supporters’ willingness to participate, thereby affecting the success rate of projects. To help entrepreneurs better convey project plans and ideas to enhance supporters’ confidence, the crowdfunding platform Kickstarter launched a budget disclosure tool aimed at improving information transparency and the effectiveness of supporter decision-making by publicly sharing cost allocation details. The motivation of this study is to explore the practical application effects of this novel information disclosure tool in the crowdfunding environment and its potential impact on supporter behavior using empirical research methods.
Research Content
This study focuses on the role of the budget disclosure tool on the Kickstarter crowdfunding platform, examining its effects on alleviating information asymmetry, enhancing supporter trust, and improving project financing performance. The study analyzes the project budget tool launched by Kickstarter in 2019, which allows creators to publicly disclose project cost allocation information. This research first reviews relevant literature, including findings on information disclosure and cost transparency in the crowdfunding field, clarifying the theoretical significance of budget disclosure in crowdfunding projects. Subsequently, by collecting crowdfunding project data from 2019 to 2020, the study employs matching methods and causal inference models to assess the impact of budget disclosure on project financing, focusing on its different effects on the number of supporters (breadth) and the amount of single support (depth). Furthermore, the study explores how budget disclosure influences supporters’ behavioral motivations, distinguishing between reward-based support and altruistic (unconditional) support. Finally, by analyzing the moderating effect of the proportion of fixed costs in the cost structure on the disclosure effect, the study reveals the applicable contexts for disclosure strategies. This research aims to provide theoretical and empirical support for optimizing information disclosure mechanisms on crowdfunding platforms while expanding the practical application of information transparency in emerging financing fields.
Research Methodology
This study first uses matching methods (CEM) to ensure comparability between crowdfunding projects in the experimental and control groups. Secondly, it employs difference-in-differences and causal inference models to evaluate the impact of budget disclosure on financing performance, including the number of supporters (breadth) and the amount of single support (depth). At the same time, the study distinguishes between reward-based support and unconditional donation support, analyzing the impact of budget disclosure on different support motivations. Additionally, by integrating cost structure analysis, it explores the moderating effect of the proportion of fixed costs on the disclosure effect. This research constructs instrumental variables based on similar projects and addresses potential endogeneity issues through two-stage regression models.
Research Conclusions
This study finds that budget disclosure on crowdfunding platforms significantly improves project financing performance. Specifically, projects that disclose budgets attract more supporters (breadth), but the amount of single support (depth) does not significantly increase. This effect primarily arises from the disclosure enhancing supporters’ trust in the project, especially stimulating more altruistic (unconditional) behavior rather than purely reward-based support. Furthermore, the study indicates that when the proportion of fixed costs in a project is relatively high, the positive effects of disclosure are somewhat weakened (but remain positive), which may be related to supporters’ sensitivity to high profit margins. Further analysis reveals that the trust enhancement brought by budget disclosure not only increases fundraising but also enhances the more positive emotional expressions in supporters’ comments. The study further finds that female creators experience a funding growth rate 20% to 30% higher than male creators due to budget disclosure. This result may relate to the role of budget disclosure in enhancing trust and establishing emotional connections with supporters, as female creators are typically more influenced by community support and trust on crowdfunding platforms. This finding emphasizes the potential of crowdfunding as a decentralized financing tool in promoting gender equality and supporting female entrepreneurs, providing important evidence for designing more inclusive policies on crowdfunding platforms.
Research Contributions
1. Extends the application field of cost transparency research
This study extends the theory of cost transparency from traditional retail and behavioral experimental contexts to crowdfunding platforms, empirically demonstrating the role of budget disclosure in reducing information asymmetry, enhancing supporter trust, and improving financing performance, thereby enriching the application scenarios and practical significance of cost transparency research.
2. Reveals the specific effects of budget disclosure
The study finds that the improvement in project financing due to budget disclosure is mainly reflected in the increase in the number of supporters (breadth), rather than the enhancement of single support amount (depth). Additionally, budget disclosure significantly promotes altruistic (unconditional) behavior, reflecting the enhancement effect of disclosure on supporter trust and sense of belonging to the crowdfunding community.
3. Explores the moderating effect of cost structure on transparency effects
The study reveals the impact of the proportion of fixed costs on the budget disclosure effect; when the proportion of fixed costs is high, the positive effects of disclosure may be weakened. This finding enriches the theoretical framework of the interaction between cost transparency and cost structure.
Full Text Link
Fu, W., Shang, G., & Tong, X. (2024). Budget Disclosure in Crowdfunding: Information Asymmetry and Cost Transparency. Manufacturing & Service Operations Management.
https://doi.org/10.1287/msom.2022.0374
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Editor: Wang Yusheng
Review: Li Yongjian
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