Cognitive Processes of Signal Set From Entrepreneurs and the Importance of Herds in Equity Crowdfunding

Drawing on a theoretical framework associated with the cognitive perspective, we propose that investors will rely on heuristic cognitive processes when signals from entrepreneurs are congruent or imbalanced incongruent. However, when signals are balanced incongruent, investors will engage in systematic cognitive processes that incorporate additional information from the herding behavior of other investors. We find evidence supporting our hypotheses in a sample of campaigns listed on a UK equity crowdfunding platform. Further analysis employing advanced machine learning techniques reveals that investors engage more in systematic processes when signals from entrepreneurs are in a weak form of balanced incongruence rather than a strong form.