New Study Challenges Signaling Theory in Crowdfunding and Entrepreneurial Fundraising

A recent study published in the Journal of Small Business Management challenges the widely accepted use of signaling theory in explaining the impact of entrepreneurial communication on fundraising success. Conducted by MMTC researchers Norbert Steigenberger (Umeå University), Marcel Garz, and Thomas Cyron (Jönköping University), the study suggests that over-reliance on signaling theory may lead researchers to overlook alternative mechanisms, potentially resulting in inaccurate conclusions.

The researchers conducted an empirical analysis of 5,908 campaign-day observations across 175 Kickstarter campaigns, specifically reexamining the frequently observed positive relationship between campaign updates and fundraising success. Contrary to signaling theory expectations, they found no support for a signaling mechanism. Instead, their data indicated that updates act as affective stimuli, which might engage backers emotionally and drive fundraising success.

The study offers three key contributions. First, it expands research on entrepreneurial fundraising by providing a framework for empirically substantiating signaling mechanisms, helping researchers avoid overlooking alternative explanations. Second, it contributes to signaling theory by establishing a minimum necessary condition for testing the theory’s boundaries. Finally, it advances crowdfunding research by offering new insights into why campaign updates drive fundraising success, emphasizing the role of emotional engagement rather than signaling.

The team’s findings underscore the importance of testing the boundaries of signaling theory and provide new methodological guidance for researchers exploring fundraising communication. This approach could lead to more accurate explanations and practical recommendations in the field of entrepreneurial finance.