Fostering Entrepreneurship through Crowdfunding: What Drives Local Biases?


Small businesses/entrepreneurs increasingly rely on crowdfunding platforms to raise funds for their entrepreneurial projects. While such a financing strategy enables entrepreneurs and funders to interact with fewer geographic constraints, we find empirical evidence consistent with strong local biases among funders in online crowdfunding markets. What drives these biases? Our results suggest that in addition to funders’ local preferences, information frictions play a more important role in driving the local biases, preventing high-quality entrepreneurial projects from being identified and funded by investors outside their regions. Exploring the role of platform-design features, we find that, with the presence of strong local biases, not reveal- ing locational information of projects could be welfare improving. Business strategies could be tailored for different project categories to help mitigate non-local funders’ informational disadvantages and foster local entrepreneurship.

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