Self-centred societies are more likely to embrace crowdfunding, says new research
Societies with characteristics such as widespread individualism are more likely to embrace crowdfunding as means of investing and financing, says new research from Trinity Business School.
According to the research, undertaken by Francesca Di Pietro, Assistant Professor in Business Strategy at Trinity, a country’s institutional characteristics will significantly impact the likelihood of that society creating new business ventures.
With crowdfunding being an increasingly popular means of financing new ventures, Di Pietro focused specifically on how a society’s characteristics would impact crowdfunding.
Di Pietro undertook a study which analysed the influence of both formal and informal institutions in 27 different countries during between 2014 and 2017. Formal institutions are political, economic and contractual rules that shape individual behaviour, while informal institutions refer to values, beliefs and behavioural norms within a country.
She found that societies that were more individualistic had higher levels of crowdfunding. Alongside this, Di Pietro’s research found that countries with a more business-friendly legal system were more likely to embrace all forms of crowdfunding.
Surprisingly, the research also found that communities who are more risk-adverse were more likely to invest in ‘lending-based crowdfunding’ opportunities – in which those who invest expect to recoup their investment, plus interest, after the lending period is up – suggesting that it could be seen as a safer investment.
The research revealed that China has the world’s largest crowdfunding market, driven especially by widespread lending-based crowdfunding. Meanwhile, the US and UK has the second and third largest crowdfunding markets.
Dr Francesca Di Pietro, Assistant Professor in Business Strategy at Trinity Business School, says:
“Covid-19 has had a severe impact upon financial markets, forced small businesses and entrepreneurs to rethink their business model and look for alternative forms of financing. This research is useful in identifying where crowdfunding is most likely to be successful for these entrepreneurs.”
Published in the International Review of Financial Analysis