Dynamics of Lending-Based Prosocial Crowdfunding: Using a Social Responsibility Lens

Abstract

Crowdfunding platforms have revolutionized entrepreneurial finance, with 200 billion dollars expected to be dispersed annually to entrepreneurs and small business owners by 2020 (2014 economic value of crowdfunding. http://www.crowdsourcing.org/editorial/crowdfunding-outlook-for-2014-and-beyond-infographic/30520, 2014). Despite the importance of this growing phenomenon, our knowledge of the dynamics of successful lending-based prosocial crowdfunding and its implications for the business ethics literature remain limited. We use a social responsibility lens to examine whether crowdfunders on a lending-based prosocial platform (Kiva) lend their money based on altruistic or strategic motives. Our results indicate that the dynamics of prosocial lending-based crowdfunding are somewhat consistent with traditional forms of financing. Specifically, despite a prosocial setting in nature, crowdfunders tend to act strategically, positively responding to signals of quality and low risk. Notably, we also find that projects that are high on both financial and social appeal receive the highest average amount of funding. Furthermore, language on the lender’s profile indicating ability to pay is positively related to both funding success and funding amount. Our study contributes to filling the gap in the business ethics literature about the dynamics of lending-based prosocial crowdfunding, and the strategic and altruistic ethical motives that drive lenders in such endeavors.