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The More, the Merrier? The Bystander Effect on Crowdfunding Platforms

ficult for the supporters to evaluate the quality of campaigns. For example, the project cre-
ators usually hold private and undisclosed information about the campaign’s developmen-
tal stage, product quality, and prospectus. To improve the fundraising performance, project
creators may have the incentive to overstate the quality of their projects (Usman, Bukhari,

Usman, Badulescu, and Sial, 2019). Second, most of the projects are at the conceptual or
developmental stages, and supporters have information disadvantage over whether the
project creators will deliver the projects or services after the campaign ends (Mollick,

2014). To overcome these information disadvantages, prior studies suggest that crowd
funders rely on various signals, such as founders’ social and human capital, third-party
endorsement, or project legitimacy (Colombo et al., 2015), to make their funding decision.
Considering the uncertainty of project quality, we expect that project legitimacy
would reduce information ambiguity and mitigate the bystander effect. Prior studies

suggest that legitimacy is one positive signal that indicates a firm’s underlying quality and
helps reduce investors’ perception of project uncertainty (Certo, 2003; Meyer and Rowan,
1977). New ventures can build legitimacy through affiliation with reputable or high-status

third-party organizations, such as venture capitalists and university or alliance partners
(Rao, 1994; Sorescu, Shankar, and Kushwaha, 2007; Zimmerman and Zeitz, 2002).
On the crowdfunding platform, project legitimacy can be conferred by the back-
ground of the project initiator, such as whether these projects are initiated by incumbent
organizations. Incumbent firms are considered legitimate for the following two reasons.

First, incumbent firms have more information about their past business operations and
financial performance (Stinchcombe, 1965). Second, incumbent firms have abundant re-
sources, knowledge, and experiences necessary for completing the projects (Aldrich and

Fiol, 1994). Given their resources and experiences, incumbent firms are less likely to en-
counter product delay issues caused by manufacturing, shipping, or technical problems.
Consequently, incumbent firms have a higher probability of delivering their products or
services on time.
Project legitimacy in the form of firm incumbency reveals the underlying quality of

the project and helps reduce project ambiguity. Such a less ambiguous situation will turn
those bystanders into backers. Thus, the negative relationship between the bystander effect
and the daily pledge amount is weakened for projects initiated by incumbent firms. Our

research proposes the following hypothesis:

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