3. Signaling to Overcome Inefficiencies in Crowdfunding Markets

This chapter positions the study of signals in crowdfunding within the broader literature on signaling in entrepreneurial finance. I deliver a theoretical discussion and definition of signals in crowdfunding, including examples of penalty and handicap signals, differentiating them from passive characteristics and cheap talk. I propose a taxonomy of signals that matches the senders—namely, such organizations as firms and nongovernmental organizations, and individuals, including both proponents and fellow crowd-funders—and receivers, such as backers, lenders, and investors. Existing studies are classified in this taxonomy based on the definitions of reward- and donation-based crowdfunding, crowd-investing, and crowd-lending. I conclude by identifying future research directions and calling for studies on post-signal performance.