Social Ties and Peer Effects in Crowdfunding Markets

Using Facebook data on social connections, we identify the crucial role online social networks play in crowdfunding markets. Investors are 41.5% more likely to fund projects that their social network peers support and are 11.2% more likely to fund projects from regions to which they have strong social ties, given a one standard deviation increase in the corresponding variables. Peer effects complement the impact of social ties and platform designs that improve disclosure and enhance accountability; social ties enhance the sensitivity of funding decisions to relevant information about area-level economic conditions. We establish causality by utilizing natural disaster shocks and further show that the investor-project–level results aggregate up and affect projects’ funding success. Our findings suggest that social networks influence investor attention, disseminate valuable information, and contribute to equilibrium capital allocation