7+(6,6',66(57$7,21$33529('%< 'LJLWDOO\VLJQHGE\'XQKDP/HH0 BBBBBBBBBBBBBBBBBBBBBBBBB0DUFK BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB'XQKDP/HH0 'DWH 'DWH 3K' 'LJLWDOO\VLJQHGE\6XGKDNDU5DMX BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB6XGKDNDU5DMX 'DWH 3K' 'LJLWDOO\VLJQHGE\.ULVWLH%ULJJV BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB.ULVWLH%ULJJV 'DWH 3K' 'LJLWDOO\VLJQHGE\*DLO0-HQVHQ *DLO0-HQVHQ 'DWH BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB *DLO0-HQVHQ3K''HDQ ALLURING AND ENGAGING THE CROWD: A LOOK AT UNITED STATES EQUITY CROWDFUNDING OFFERINGS USING SENTIMENT ANALYSIS _____________________________________________ By SARAH J. BORCHERS _____________________________________________ A DISSERTATION Submitted to the faculty of the Graduate School of the Creighton University in Partial Fulfillment of the Requirements for the degree of Doctor of Business Administration _____________________________________________ Omaha, NE April 16, 2020 Copyright (2020) Sarah J. Borchers This document is copyrighted material. Under copyright law, no part of this document may be reproduced without the expressed permission of the author. ABSTRACT Equity crowdfunding has grown exponentially in the United States since the passage of the JOBS Act in 2013, yet it continues to be an area that is relatively unexplored in the United States due to the limited availability of data. Given the limited amount of information available to potential investors about these highly risky, early-stage crowdfunding investment opportunities, qualitative factors, such as the sentiment or readability of the language used to describe the campaign, is likely to play an important role in the decision to invest, yet this area has not been explored in the equity crowdfunding literature. My dissertation examines the impact of both the sentiment and readability of the language used in a campaign description as well as an entrepreneur’s engagement with the crowd during a campaign. I first examine the role sentiment, as measured tone, and readability, play in influencing an investor’s decision to invest via equity crowdfunding platforms and whether this ultimately impacts the success of the offering. I employ various logit, Tobit, and beta regressions to determine the impact sentiment and readability play in campaign success. Further, I examine equity crowdfunding offerings both before and after the passage of Title III of the JOBS Act and the differences in investor motivations for both accredited and non-accredited investors. I find that readability and success have an inverse u-shaped relationship. Further, I find that the use of greater positive tone in the crowdfunding description increases the success of the campaigns for a subset of offerings prior to the passage of Title III only. Second, I examine an entrepreneur’s engagement with the crowd via questions and responses, comments, and testimonials and whether engagement ultimately impacts the success of the offering. I find that these on-platform engagement tactics positively impact the success of the campaign for a subset of offerings after the passage of Title III of the JOBS Act in the United States. iii ACKNOWLEDGEMENTS The completion of this dissertation and the DBA program would not have been possible without my mentors, my family, and my friends who are like family. Words feel extremely inadequate to express the deep sense of gratitude I have for all of you. To my mentors, I was so incredibly lucky to work with some of the most talented faculty throughout the DBA program and appreciated their guidance and expertise. In addition, I am so fortunate to work among such a wonderful group of individuals who also offered me countless hours of help and support. To my cohort, I never knew how much I was going to need all of you when I embarked on this journey. I am blessed to have been placed in a cohort with such talented and incredible human beings. To my dissertation committee members, Dr. Dunham and Dr. Raju, I will never be able to repay you or fully express my gratitude. Your countless hours of guidance, suggestions, and proofreading (let’s face it, rewriting) were invaluable. Serving on a committee has to be one of the most thankless roles around, yet you sacrificed your own time and energy without hesitation. To my family, you have all stayed by my side from day one and never tried to talk me out of embarking on this journey. You were there for advice, guidance, and to talk me off the ledge on multiple occasions. To my husband, thank you for dropping everything to help out and for being a constant pillar of support. Mom and dad, thank you for raising me to be crazy enough to think I could accomplish anything I set my mind to. To my kids, I hope you see that you can do anything and I hope you realize the sacrifices I made in the time I was not able to spend with you were all done out of love and with you in mind. To my friends who are also my family, you saved me on multiple occasions. From being able to call you last minute to pick kids up from school, or grab something I forgot, or watch my kids so I could work, I always knew things were taken care of and everyone was in good hands. Thank you for being selfless and always willing to lend a helping hand. I will never be able to repay you. iv Table of Contents ABSTRACT ................................................................................................................................................. iii ACKNOWLEDGEMENTS ......................................................................................................................... iv LIST OF FIGURES .................................................................................................................................... vii LIST OF TABLES ..................................................................................................................................... viii CHAPTER 1: INTRODUCTION ................................................................................................................. 1 1.1 Dissertation Overview................................................................................................................... 1 1.2 Dissertation Organization ............................................................................................................. 4 CHAPTER 2: LITERATURE REVIEW ...................................................................................................... 5 2.1 The JOBS Act ............................................................................................................................... 6 2.2 Signaling Theory ........................................................................................................................... 7 2.3 Pecking Order Theory ................................................................................................................... 9 2.4 Social Identity Theory ................................................................................................................. 10 2.5 The Decision to List and Invest .................................................................................................. 10 2.6 Crowdfunding Success ................................................................................................................ 12 2.6.1 Campaign Characteristics ................................................................................................... 13 2.6.2 Understandability, Tone and Sentiment .............................................................................. 15 2.6.3 Use of Networks.................................................................................................................. 18 CHAPTER 3: HYPOTHESES DEVELOPMENT ..................................................................................... 21 CHAPTER 4: METHODOLOGY .............................................................................................................. 24 4.1 Impact of Sentiment on Campaign Success ................................................................................ 24 4.2 Impact of Crowd Engagement on Campaign Success ................................................................ 27 CHAPTER 5: DATA AND DESCRIPTIVE STATISTICS ....................................................................... 29 CHAPTER 6: RESULTS ............................................................................................................................ 36 6.1 The Effects of Sentiment and Readability on Campaign Success .............................................. 36 6.2 Effects of Sentiment and Readability After Passage of Title III ................................................. 38 6.3 Impact of Engagement with the Crowd on Campaign Success .................................................. 39 6.4 Robustness Analyses ................................................................................................................... 42 6.4.1 Beta Regression Robustness Results ................................................................................... 42 6.4.2 SMOG Readability Index .................................................................................................... 43 CHAPTER 7: CONCLUSION.................................................................................................................... 46 7.1 Contributions ............................................................................................................................... 46 7.2 Limitations .................................................................................................................................