The Nearer, the Better? The Impact of Cultural and Geographic Distance on Crowdfunding Project Attractiveness

Abstract

Information asymmetry between backers and project creators impedes the crowdfunding success. Consequently, creators usually rely on various information to alleviate information asymmetry. Particularly, the location information of both backers and creators embodies their geographic and cultural distance, which may affect crowdfunding project attractiveness. Whereas current literature almost ignores the role cultural distance in crowdfunding, this research focuses on the reward-based crowdfunding, so that it becomes salient to form the appreciation and judgment of the innovative, creative, or artistic nature of projects. Meanwhile, geographic distance is examined to join the debates between flat world hypothesis and home bias proposition. A series of econometric models are examined based on a sample of 264 fundraising projects collected from Kitckstarter.com through Python program. Results show that cultural distance exerts a U-shape effect, which initially impedes the crowdfunding performance but promote projects when large enough. Geographic distance generally exerts insignificant impact on crowdfunding performance. Furthermore, cultural and geographic distance exerts the asymmetric effects on experienced versus new backers. This article underscores the important implications of cultural distance on reward-based crowdfunding. By showing the differential effects of cultural and geographic distance on experience versus new backers, it empirically infers the social capital as the underlying mechanism.