Guanxi, trust and reward-based crowdfunding success: a Chinese case

Abstract

This paper aims to examine different hypotheses concerning the effects of guanxi on the reward-based crowdfunding project fundraising. Specifically, this study provides new insights into how guanxi and guanxi intensity may affect reward-based crowdfunding success and project performance in the Chinese context.
The research data including 989 crowdfunding projects were collected from zhongchou.com which is the largest reward-based crowdfunding platform in a one-year period (2014.1-2014.12). The hypotheses are tested by using robust OLS regressions and robust logistic regressions. Robustness check was also conducted to test the validation of the results.
This paper found that project developers’ guanxi-establishing behavior conducted before launching their own projects such as being fans of other projects and supporting other projects are positively related to project success. In addition, the intensity of guanxi-establishing behavior positively influences project performance in a significant way. Besides, the establishment and maintenance of project developers’ guanxi with funders during the fundraising process are also positively associated with project success and fundraising performance.
Based on the theory of trust, this paper offers an interesting and novel perspective to investigate reward-based crowdfunding success in the Chinese context by taking guanxi and guanxi intensity into consideration.

Full text

Guanxi, trust and reward-based
crowdfunding success:
a Chinese case
Liang Zhao
School of Business and Law, University of Agder, Kristiansand, Norway, and
Tsvi Vinig
University of Amsterdam, Amsterdam Business School, Amsterdam, Netherlands
Abstract
Purpose –This paper aims to examine different hypotheses concerning the effects of guanxi on the
reward-based crowdfunding project fundraising. Specifically, this study provides new insights into how
guanxi and guanxi intensity may affect reward-based crowdfunding success and project performance in
the Chinese context.
Design/methodology/approach –The research data including 989 crowdfunding projects were
collected from zhongchou.com which is the largest reward-based crowdfunding platform in a one-year period
(2014.1-2014.12). The hypotheses are tested by using robust OLS regressions and robust logistic regressions.
Robustness check was also conducted to test the validation of the results.
Findings –This paper found that project developers’guanxi-establishing behavior conducted before
launching their own projects such as being fans of other projects and supporting other projects are positively
related to project success. In addition, the intensity of guanxi-establishing behavior positively influences
project performance in a significant way. Besides, the establishment and maintenance of project developers’
guanxi with funders during the fundraising process are also positively associated with project success and
fundraising performance.
Originality/value –Based on the theory of trust, this paper offers an interesting and novel perspective to
investigate reward-based crowdfunding success in the Chinese context by taking guanxi and guanxi intensity
into consideration.
Keywords China, Guanxi, Success, Reward-based crowdfunding
Paper type Research paper
Introduction
Crowdfunding as a new financing tool is increasingly becoming common globally. The
concept of crowdfunding emerged from the broader concept of crowdsourcing, which
implies using the “crowd”as a source of ideas, feedback and solutions to develop corporate
activities (Belleflamme et al.,2013). The global crowdfunding market grew from US$1.5bn in
2011 to US$2.7bn in 2012, US$6.1bn in 2013, US$16.2bn in 2014 and an estimated volume of
US$34.4bn in 2015(World Bank, 2013).
Erratum: It has come to the attention of the publisher that the article, Liang Zhao and Tsvi Vinig,
“Guanxi, trust and reward-based crowdfunding success: a Chinese case”published in Chinese
Management Studies had the wrong affilation for Liang Zhao. this should be School of Business and
Law, University of Agder, Kristiansand, Norway. This error was introduced in the editorial process
and has now been corrected in the online version. The publisher sincerely apologises for this error
and for any inconvenience caused.
Crowdfunding
success
Received 2 February2019
Revised 18 February2019
Accepted 24 March2019
Chinese Management Studies
© Emerald Publishing Limited
1750-614X
DOI 10.1108/CMS-02-2019-0041
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1750-614X.htm

Though financing startups through crowdfunding are growing fast and have emerged as
a viable method of funding new ventures, academic research on crowdfunding is emerging.
A number of peer-viewed work on crowdfunding has been published (Mollick, 2014).
Previous crowdfunding research is mainly focused on participant motivation, campaign
success, regulation and institutions (Ramos, 2014). Among these research perspectives,
crowdfunding success research is dominating (Mollick, 2014;Xu et al., 2014;Kuppuswamy
and Bayus, 2014;Giudici et al., 2013). Based on signaling theory (Spence, 2002), through
analyzing real crowdfunding platform data, prior research has found out a list of success
factors for successful fundraising such as entrepreneur’s human capital (Zheng et al.,2016),
campaign’s quality signals (Mollick, 2014) and entrepreneur’s social networking (Colombo
et al.,2015).
Differ from the rule-based Western countries, China is well known as a guanxi-based
economy (Boisot and Child, 1996). Prior research has identified the significant role of
interpersonal trust (guanxi) in doing business in China (Chung and Hamilton, 2001).
According to The World Bank, the total market potential is estimated to be up to 90-96bn
per year by 2025. The largest market and market growth is expected to be in China, which
accounts for about US$46-50bn (World Bank, 2013). To develop the most potential
crowdfunding market, it is not only important but also meaningful to understand how
interpersonal trust (guanxi) influences the performance of the crowdfunding campaign in
the Chinese context. To mitigate this research gap, this paper employed the trust theory to
examine how the interpersonal trust (guanxi) between entrepreneurs and funders affects
reward-based crowdfunding success. By analyzing the data collected from the largest
reward-based crowdfunding platform (zhongchou.com) in China, we found out that the
established guanxi between entrepreneurs and funders is positively associated with
crowdfunding campaign success. Furthermore, stronger guanxi leads to better campaign
performance.
Culture has an important effect on an individual’s social life, and people from different
cultural backgrounds have different beliefs, attitudes and behaviors (Staber, 2006).
Compared to the studies based on Western crowdfunding platforms, little research has been
done based on the Chinese context. Theoretically, this study introduces the theory of trust to
the crowdfunding literature. Based on the theory of trust, this paper is one of the first
empirical paper to investigate the effects of guanxi on the performance of reward-based
crowdfunding in China. The results of this study offer a novel way to understand
crowdfunding success in the Chinese context. In addition, it also provides practical
suggestions for crowdfunding platform creators and project developers.
The remaining sections are organized as follows. First, literature reviews about
crowdfunding and trust were introduced. Then, hypotheses are developed based on the first
part. Next, data sources, selection procedure and variable measurement are explained.
Empirical results were introduced in the next section. In the last section, discussion,
implications and limitations are discussed.
Literature review
Crowdfunding and reward-based crowdfunding
Mollick (2014) defines crowdfunding in an entrepreneurial context as:
Crowdfunding refers to the efforts by entrepreneurial individuals and groups (cultural, social, and
for-profit) to fund their ventures by drawing on relatively small contributions from a relatively
large number of individuals using the internet, without standard financial intermediaries.
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Crowdfunding business models can be divided into four types, donation-, reward-, equity-
and loan-based, according to different exchange content between creators and investors
(Massolution, 2013). Based on their different characteristics, these four types can be
described by three categories: donation model, passive investment model and active
investment model (Schwienbacher and Larralde, 2010). Crowdfunding based on donation
has long been applied for financing not-for-profit and NGO projects (Defourny and Nyssens,
2010). In passive investment model, funders have no other interaction or communication
with entrepreneurs except having investing rewards, tailored products, honorary
recognition or other kinds of sharing from crowdfunding projects. However, active
investments offer crowdfunding investors more opportunities to communicating and
interacting with entrepreneurs or project creators. Often investors participate in the project’s
executing process. Active investors can help design new features, test the product and
provide development paths and feedback (Lehner, 2013).
In this paper, we focus on reward-based crowdfunding. Reward-based crowdfunding can
be defined as:
An open call, essentially through the Internet, for the provision of financial resources either in
form of donation or in exchange for some form of reward and/or voting rights in order to support
initiatives for specific purposes (Lambert and Schwienbacher, 2010).
Belleflamme et al. (2013) list three key characteristics of reward-based crowdfunding:
First, it often relies on the advanced purchase of products that are not available on
the market. Entrepreneurs who start crowdfunding projects describe what the final
product will be and offer a list of nonmonetary rewards for potential funders who
are willing to invest.
Second, funders pay more costs in the pre-ordering process than traditional
consumers. The costs include time and communication cost.
Third, funders identify themselves as active participants involved in the whole
product creation process, which ranges from the initial investment of money to
direct involvement in the crowdfunding campaign.
Theory of trust
Trust has been studied in various disciplines and contexts such as psychological, sociological
and economic (Wang and Emurian, 2004). Mayer et al. (1995) conceptualize trust as the
[...] willingness of a party to be vulnerable to the actions of another party based on the
expectations that the other will perform a particular action important to the trustor, irrespective of
the ability to monitor or control that other party.
In general, trust refers to a dependence on the integrity, ability or character of a person or a
thing. In other words, it means that the trustor has confidence that the trustee will care
about his or her benefits, and that the trustor is willing to rely on the trustee’s decision even
when the result is not visible immediately (Kini and Choobineh, 1998). Trust is the
willingness to rely on another party and to take action in circumstances where such action
makes one vulnerable to the other party (Doney et al., 1998). Shapiro et al. (1992) conclude
that trust has three bases:
(1) Trust based on deterrence emphasizes costs and benefits.
(2) Trust based on knowledge emphasizes the target understanding.
(3) Trust based on identification emphasizes the common values.
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Trust studies in the business context are not new. A trust-based relationship is widely
recognized as one of the most significant factors for many successful companies or
organizations (McAllister, 1995). The notion of information asymmetry makes trust of great
importance for business transactions. Trust can benefit companies by reducing their
transaction costs, increasing their flexibility and efficiency, and helping them to design their
future marketing plans or strategies more accurately (Chen and Dhillon, 2003). Most
business transactions need to take trust into consideration to be successful. According to
James (2002), trust is essential in economic exchanges. Viewed from an economic standpoint,
trust is an expectation that people will not be exploited by others. Wang andEmurian (2004)
conclude that trustor and trustee, vulnerability, produced actions and subjective matter as
four characteristics of trust.
With the emergence and fast growth of online business, scholars have shown a strong
interest in investigating the information asymmetry issue between buyers and sellers in the
context of trust (Connelly et al.,2010). Information asymmetry can be defined as the cost of
information gathering, monitoring and distributing. (Agrawal et al., 2011). Trust and trust-
building mechanisms are of great importance to solve such issues in the context of e-
business (Ba and Pavlou, 2002). With Trust, perceived uncertainty and risk associated with
anonymous online exchanges can be reduced. At the same time, consumers can feel more
confident when exchanging personal information and purchasing goods online (Ba and
Pavlou, 2002). Pavlou (2003) suggests that trust play a key role in explaining the online
consumer’s behavior. Building and maintaining trust in the online distribution channel is
more important than in an offline environment has emerged as a consensus among scholars.
Grabner-Kräuter and Kaluscha (2003) argue that the degree of uncertainty of trust is greater
in an online environment. Unlike trust, that has been defined by different scholars in
different dimensions, in the case of the online trust, there is no consensus rather a multi-
dimension view according to Lee and Turban (2001) and Yoon’s (2002) studies. Ganguly
et al. (2010) define online trust to be “perceived credibility and benevolence of the online
store in the eyes of consumer”in an online store context based on Stephens’(2004) study. In
terms of crowdfunding, there are three stakeholders involved in trust creating: funders,
entrepreneurs/founders and the platform. As a result, two different trust forms have
emerged: interpersonal-based trust and institution-based trust (Tan and Sutherland, 2004).
As a guanxi-based economy (Boisot and Child, 1996), interpersonal trust (guanxi) is of great
importance in doing business in China (Chung and Hamilton, 2001).
Interpersonal trust in China: guanxi
Interpersonal trust refers to the individual’s trust and beliefs about the others in the context
of a transaction. In the context of this study, it refers to the trust-building mechanisms
between entrepreneurs and investors. In this study, interpersonal trust can be specifically
defined as the potential funder’s trust towards project initiator on a crowdfunding platform.
In China, interpersonal trust is more important than institutional trust. Because such
interpersonal trust offers an informal but effective way to deal with business transactions
when formal legal sanctions are void or ineffective. In this case, it is interesting and relevant
to understand why some projects get successfully funded while others not on the same
crowdfunding platform in China.
Chinese potential funders may not invest in the projects which they may be interested in
because of the “perceived risk”they see (Chellappa, 2008). Kim et al. (2008) define perceived
risk as a consumer’s belief about the potential uncertain negative outcomes from the online
transaction. Cho and Lee (2006) refer to perceived risk as an individual’s biased assessment
of a risk situation which is highly dependent on the individual’s psychological and
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situational characteristics. Perceived risk precedes consumers’trust has been tested by
various studies in online business. In China, the perceived risk of crowdfunding transaction
comes from the void of institutional trust in crowdfunding, in addition to information
asymmetry.
Interpersonal trust is also a kind of dispositional trust. Rotter (1971) first deduced the
concept of dispositional trust based on psychological research. Dispositional trust can be
explained as one’s personality-driven capacityto show trust in general (Tan and Sutherland,
2004). Such ability is obtained from the belief that other ones are reliable and trustworthy.
Therefore, generally, different people vary in their propensity to trust based on their
distinctive personality. Dispositional trust as something endogenous and can be
accumulated with more interaction (McKnight et al.,1998). Guanxi is a Chinese word
referring to interpersonal nexus. It has been defined as the fundamental organizational
principle of Chinese society (Fei, 1992). Closer guanxi between two partners helps their
relationship move toward and then generate trust (Fukuyama, 1995). Specifically, in an
online business context, buyers and sellers must create some form of guanxi. Lack of
protection due to weak institutional environment and lack of institutional-based trust
pushes online business participants to rely on interpersonal relationships to conduct
transactions. They must depend on guanxi in the absence of systemic rules to alleviate the
risk of e-business (Martinsons, 2008). Therefore, guanxi can be explained as a tool to
generate trust by mitigating perceived risk.
Besides, guanxi is the result of the unique Chinese culture and social background.
Hofstede (1980) mentions that a high degree of collectivism is one key aspect of Chinese
culture. Therefore, one outstanding feature of Chinese culture is the close personal
relationship (Casimir et al., 2006). Specifically, Hui and Triandis (1986) suggest that Chinese
people belong to strong and cohesive in-groups such as extended families from birth
onward. As a result, Chinese behave differently by distinguishing in-groupers and out-
groupers. For in-groupers (people with guanxi), they would like to pay more attention to
help or cooperate. In contrast, out-groupers (people without guanxi) will get no trust from in-
groupers (Fukuyama, 1995).
However, guanxi cannot be treated merely as a cultural phenomenon. Guanxi was of
great importance for business practice in distrust and hostile colonial environment
(Kiong and Kee, 1998). Guanxi has been embedded in the daily practices of the Chinese
business community (Chung and Hamilton, 2001). Lee and Dawes (2005) refer to guanxi
as a formality or necessary procedure which people must go through to establish an
intention to conduct business with one another. Chinese businessmen treat guanxi as a
primary medium for business relationships (Chung and Hamilton, 2001). Guanxi is
fundamental to Chinese economic transactions. The establishment of guanxi depends
on guanxi base. Jacobs (1979) refers to guanxi base as “a base which two or more
persons have a commonality of shared identification”. In a business perspective, Kiong
and Kee (1998) mention that trade associations can be seen as guanxi base. Trade
associations gather information to generate opportunities for guanxi establishment
between potential buyers and sellers. In e-business context, such interaction can help
transfer visitors into buyers as well as help sellers establish a relationship with buyers
(Teo et al., 2003) through interpersonal relationship establishment and social
communication (Chen and Chen, 2004).
Hypotheses development
Differ from the rule-based Western countries, China is organized by a relation-based system
(Li et al., 2004). In a relation-based system, formal legal sanctions are sometimes not enough
Crowdfunding
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to facilitate performance of exchange (Kiong and Kee, 1998). In terms of crowdfunding, as a
new fundraising channel, not enough regulations are established by the government to
supervise the crowdfunding market in China. As a result, funders’evaluation of
crowdfunding projects by assessing the quality signals cannot be well supported. Without a
well-established regulation system, the project’s quality signals will not reduce information
asymmetry effectively. Because signalers (developers) and receivers (funders) have partially
distinct interests (Johnstone and Grafen, 1993). Therefore, inferior signalers have the
incentive to produce false signals to cheat receivers. For instance, in a weak institutional
supervision environment, project developers may exaggerate or overstate their project
quality to get successful fundraising (Gregg and Walczak, 2008). Therefore, to facilitate
project quality evaluation, interpersonal trust must be taken into consideration. When the
institutional trust is void or ineffective, it offers an informal but effective way to decrease
information asymmetry. Interpersonal trust describes a person’s trust and belief about the
others. In the crowdfunding context, it refers to the trust-building mechanisms between
project developers and potential funders. The interpersonal nexus in China is described by
guanxi.
Different to kinship as blood-based guanxi (Kiong and Kee, 1998), the guanxi
between project developers and funders is based on social interaction which can be
treated as social-based guanxi. In crowdfunding context, it offers a “comment area”to
facilitate interactive communication process between founders and funders. In this
area, founders can post their project update information and answer (potential)
funders’questions about their project. Funders can ask questions and leave comments
about projects. Founders can refine their projects based on funders’advice or
comments. At the same time, potential funders will turn into funders as they have
more instant feedback information from the initiators. Through this interactive
communication process, founders and funders can communicate with each other,
mitigate disagreements, overcome information asymmetries, negotiate refinement and
ultimately reach an outcome that is satisfactory for both sides. It is an effective
mechanism to generate guanxi between founders and funders based on crowdfunding
platform acting as guanxi base. This process helps to strengthen mutual
understanding between founders and funders through this interactive communication.
As a result, guanxi is generated.
The crowdfunding platform is not only a fundraising marketplace but also an online
community (Hui et al., 2013). The platform offers interacting opportunities for potential
funders and fund seekers. Therefore, the crowdfunding platform can be treated as a guanxi
base (Kiong and Kee, 1998) which can be used to establish guanxi between funders and fund
seekers. As a two-sided platform, a project developer can also be a project supporter at the
same time (Zvilichovsky et al., 2014). If project developers have ever supported projects or
like projects on the crowdfunding platform, they actually release some positive guanxi-
establishing signals towards the potential funders before they launch their own projects.
They stay in this market for not only seeking fund but also helping others. From potential
funders’perspective, they are all project supporters or fans in the same crowdfunding
community. They share similar motivations and mutual value as crowdfunding community
members. Although they do not know each other before, they are not strangers any more as
they co-habited on the same guanxi base. Potential funders tend to treat these dual role
project developers as community members because of their positive guanxi-establishing
signals. Therefore, they are more eager to support their projects based on community
recognition.
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On basis of the discussions, we propose the hypotheses:
H1. Being active crowdfunding community participants before launching their own
projects is positively associated with fundraising success.
H1a. A project developer who has ever been a fan of other projects before launching his
(her) own project is positively associated with project success.
H1b. A project developer who has ever supported other projects before launching his
(her) own project is positively associated with project success.
H2. The intensity of participating in the crowdfunding community before launching their
own projects is positively associated with their project fundraising performance.
H2a. The number of projects that a project developer has ever been a fan of before launching
their own project is positively associated with his/her fundraising performance.
H2b. The number of projects that a project developer has ever supported before launching
their own project is positively associated with his/her fundraising performance.
Davila et al. (2003) mentioned that signals are essentially snapshots pointing to unobservable
signaler quality at a particular point in time. However, the information for signalers and
receivers is always changing in a dynamic environment. Therefore, signalers must signal
repetitively to keep signal effectiveness for reducing information asymmetry (Park and Mezias,
2005). Guanxi as a form of signal also needs to be maintained after its establishment to remain
effective (Chung and Hamilton, 2001). Reciprocity is a distinctive characteristic of guanxi
(Chung and Hamilton, 2001). Reciprocity means the positive benefits of mutual interaction from
both participants in the transaction. The interaction between founders and funders is from
reciprocity. In the case of a reciprocity cycle, initiators will post project related information as
updates about their projects firstly. Then potential funders will offer suggestions or ask
questions as the feedback of initiators’updates. Then developers will try to write comments to
answer their questions. This is the beginning of building guanxi between developers and
potential funders. Founders can then refine their projects based on the funders’suggestions and
comments. As a result, potential funders’perceived risk about the projects is decreased;
therefore, the distrust is eliminated due to the gradually enhanced guanxi based on the repeated
reciprocity interaction. Therefore, the intensity of guanxi between developers and funders
should influence fundraising performance. A project developer with more interaction with
funders would generate stronger guanxi which leads to better fundraising result.
Based on the analysis, the following hypothesis is proposed:
H3. The establishment of guanxi during the fundraising period between project
initiators and funders is positively associated with crowdfunding success.
H4. Project initiators who have a stronger intensity of guanxi with funders in the
fundraising period will have better fundraising performance.
Data and methodology
Data collection
The data of this paper are collected from zhongchou.com which is the largest reward-based
crowdfunding platform in China. Since established in February 2013, this platform is
focused on supporting reward-based crowdfunding projects fundraising. Similar to
Kickstarter, the projects on zhongchou.com employ the “all-or-nothing”model. It means a
Crowdfunding
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project can only be recognized as a successful project if a project’s pledge amount surpasses
the project’s target amount by the end date of its funding period. If a project failed to reach
the target amount, the pledge will be returned to the funders.
Our dataset consists of all the projects posted on zhongchou.com between January 1,
2014, and December 31, 2014. Only successful project information is accessible on
zhongchou.com. The failed projects are deleted by the end of the funding period. However,
following similar crowdfunding studies (Mollick, 2014), we wrote a web-crawler program to
collect all project related information in the one year period. This automatic data collecting
method offers high levels of data validity when dealing with online data (Mollick, 2014).
Over the one-year period, we successfully collected all project related information for 1347
projects from zhongchou.com. We removed all the projects under the category public.
Because charity crowdfunding projects are donation-based crowdfunding (Hemer, 2011). In
addition to public projects, we also removed the projects which are launched by experienced
project developers to eliminate the predicted bias caused by experienced developer’s
“learning by doing”(Hsu, 2007) behavior. It is obvious that an experienced initiator who has
developed several projects before having a higher chance to create better candidates for
future success funding (Gompers et al., 2010). In addition, we also identified and removed the
outlier projects which pledges and targets are extremely large.
After the data cleaning, our final dataset includes 989 projects from five categories
(Technology, Publishing, Entertainment, Arts, Agriculture, and Others). We collect the
following information about every project: project fundraising result, project total fundraising
amount, project fundraising ratio, project duration, project target, project perk levels, project
comments (funder and founder), has video, the length of the project description, project location,
project category, project picture number, project fans number, project update number and
project launched month. Besides, whether the founder has ever liked and supported other
projects before launching their projects were also collected. Our final dataset includes all
projected related information on 989 projects.
Based on the collected information, we coded them into three kinds of variables in the
next section: the dependent variable, independent variables and control variables.
Measures
Dependent variables.
Success: this is a binary dummy variable. If one project’s end pledges are equal or
greater than the fundraising target, the project can be seen as a successful project.
The dummy value is one for successful projects. Otherwise, the dummy value is
zero for failed projects.
Pledge: the total amount of all pledges made by the backers of a crowdfunding project.
Independent variables.
Like: this is a binary dummy variable. If one founder had ever been fans by liking
projects on zhongchou.com, the dummy value is one. Otherwise, the dummy value is zero.
Likenum: the total number of likes a project developer has given to other projects
before launching his/her own project.
Support: this is a binary dummy variable. If one founder had ever been a funder by
supporting projects on zhongchou.com, the dummy value is one. Otherwise, the
dummy value is zero.
Supportnum: the total number of projects a project developer has supported before
launching his/her own project.
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Guanxi: this is a binary dummy variable. If one founder has ever written comments
to answer questions, the dummy value is one. Otherwise, the dummy value is zero.
Guanxi intensity: guanxi intensity can be calculated by a project developer’s total comment
number divides by the total number of comments from both project developer and funders.
Control variables.
Wordcount: the length of a project’s description in words.
Video: this is a binary dummy variable. If there is a video on one project’s webpage,
the dummy value is one. If there is no video on it, the dummy value is zero.
Picture: the total number of pictures posted on one project’s webpage.
Duration: the number of days for a project to raise funding.
Perks: the number of reward perks shown on one project’s webpage.
Fans: the total number of fans of a project.
Update: the total number of updates of a project.
Target: the total amount of money that the fund seekers need.
Category: a set of dummy variables (Technology, Publishing, Entertainment, Arts,
Agriculture, and Others) to distinguish which category one project belongs to.
Location: a set of dummy variables to distinguish where one project was created.
The projects come from thirty different Chinese provinces, municipalities or
autonomous districts.
Month: a set of dummy variables to distinguish in which month a project is launched.
The descriptive statistics of all variables are shown in Table I.
Results
According to the results of Table I, we noticed that some of the variables are not normally
distributed with high skewness. To decrease regression bias, we transfer all the skewed
variables into the natural log form.
Table I.
Descriptive statistics
Variable Obs Mean SD Minimum Maximum
Pledge 989 26,100.58 93,492.56 1.00 1,271,230.00
Fundrate 989 1.17 2.84 0.01 63.72
Success 989 0.54 0.50 0.00 1.00
Like 989 0.60 0.49 0.00 1.00
Likenum 989 39.32 92.99 0.00 1,218.00
Support 989 0.46 0.50 0.00 1.00
Supportnum 989 1.21 3.31 0.00 65.00
Guanxi 989 0.21 0.41 0.00 1.00
Guanxi_intensity 989 0.08 0.17 0.00 0.94
Video 989 0.52 0.50 0.00 1.00
Wordcount 989 1,531.80 1,262.11 13.00 13,913.00
Picture 989 7.17 6.00 1.00 38.00
Update 989 3.38 3.88 1.00 26.00
Target 989 33,033.99 92,052.72 1,000.00 1,000,000.00
Fans 989 186.88 433.27 3.00 5,575.00
Perks 989 6.46 2.23 2.00 30.00
Duration 989 46.70 30.17 1.00 301.00
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We calculated the variance inflation factors (VIFs) of all the variables. The average VIF is
1.04 which is below the conventional threshold of 6, and the maximum VIF is 1.07 which
is below the conventional threshold of 10 according to the suggestion threshold of
McDonald and Moffitt (1980). Therefore, no multi-collinearity existed in our dataset. The
correlation matrix of all variables is presented in Table II.
To test the hypotheses, both robust OLS regression and robust logistic regression are
conducted. Table III reports the regression results by six models.
In terms of model explanatory power, the value of PR
2
or R
2
of all our models suggests
that our independent variables explain a substantial portion of the dependent variables. For
instance, the minimum value of PR
2
or R
2
is 0.39 and the highest value is 0.57. We can state
that all our models have adequate explanatory power.
For the empirical results, H1a and H1b are tested by the results of Models 1 and 2 in
Table III, respectively. Robust logistic regressions are conducted to estimate Model 1 and
Model 2 because the dependent variable (Success) is binary. As expected, our independent
variables (Like and Support) are positively associated with the success of a crowdfunding
campaign (B = 0.898, p<0.001; B = 0.650, p<0.001). In terms of the H2,H2a and H2b are
tested by Models 3 and 4 in Table III. Robust OLS regression is chosen to test H2a and H2b.
Because the dependent variable is crowdfunding performance (Ln_pledge) which is a
continuous variable. According to the results in Table III,Ln_likenum and Ln_supportnum
have positive influences on project performance (B = 0.328, p<0.001; B = 0.428, p<0.001).
To sum up, we find evidence that the presence of project developers’guanxi-establishing
behavior before launching their projects is positively associated with crowdfunding success
(H1) and the intensity of the guanxi-establishing behavior positively affect project
fundraising performance. H3 and H4 are tested by Models 5 and Model 6 in Table III,
respectively. Robust logistic regression is used to estimate Model 5 and Robust OLS
regression is used to estimate Model 6. According to the results in Table III,Guanxi is
positively associated with crowdfunding project success (B = 2.018, p<0.001). Guanxi
intensity significantly influences crowdfunding project performance (B = 1.224, p<0.001).
The results proved that the presence of project developers’guanxi-establishing behavior
during the fundraising period is positively associated with crowdfunding success (H1) and
the intensity of the guanxi positively affects project fundraising performance.
In addition, our findings for the effects of control variables are similar to prior studies
(Mollick, 2014;Colombo et al.,2015). For instance, Target and Duration are negative and
significant (p<0.001) in predicting crowdfunding success and fundraising performance.
Video,Ln_wordcount, and Ln_picture as quality signals are positively and significantly (p<
0.001) related to crowdfunding success and fundraising performance.
To examine the robustness of our results, we conduct additional estimates of our models.
We use the natural log transformation of fundrate (Ln_fundrate) as a new dependent
variable to re-estimate the six models (Fundrate is the ratio of Pledge and Target). The
results of the new estimations are reported in Table IV. According to the results of Table IV,
our results are still robust if we use Ln_fundrate as the new dependent variable to estimate
crowdfunding success and performance. Specifically, all the coefficients of Like,Support,
Ln_likenum,Ln_supportnum,Guanxi, and Guanxi intensity are positive and significant
(p<0.001) in all six Models of Table IV.
Discussion and conclusion
This paper investigates the role of guanxi on the success and performance of reward-based
crowdfunding projects in China. By analyzing a sample of 989 projects from the largest
CMS

Like Support Ln_likenum Ln_supportnum Guanxi Guanxi_intensity
Like 1
Support 0.019 1
Ln_likenum 0.011 0.812*** 1
Ln_supportnum 0.86*** 0.026 0.045 1
Guanxi 0.001 0.090*** 0.129*** 0.117*** 1
Guanxi_intensity 0.034 0.034 0.088*** 0.145*** 0.859*** 1
Video 0.06* 0.057* 0.035 0.159*** 0.251*** 0.157***
Ln_picture 0 0.005 0.004 0.067** 0.099*** 0.079**
Ln_wordcount 0.07** 0.081** 0.057* 0.087*** 0.047 0.047
Ln_update 0.065** 0.129*** 0.135*** 0.096*** 0.617*** 0.476***
Ln_fans 0.092*** 0.011 0.031 0.272*** 0.328*** 0.299***
Ln_duration 0.116** 0.063** 0.086*** 0.120*** 0.085*** 0.032
Perks 0.028 0.049 0.015 0.034 0.02 0.019
Ln_traget 0.065** 0.060* 0.080** 0.168*** 0.049 0.031
Notes: Standard errors in parentheses; *p<0.01; **p<0.005; ***p<0.001
(continued)
Table II.
Correlation matrix
Crowdfunding
success

Video Ln_picture Ln_wordcount Ln_update Ln_fans Ln_duration Perks Ln_traget
Like
Support
Ln_likenum
Ln_supportnum
Guanxi
Guanxi_intensity
Video 1
Ln_picture 0.137*** 1
Ln_wordcount 0.132*** 0.013 1
Ln_update 0.367*** 0.192*** 0.069** 1
Ln_fans 0.283*** 0.062* 0.070** 0.393*** 1
Ln_duration 0.001 0.134*** 0.031 0.216*** 0.048 1
Perks 0.110*** 0.116*** 0.032 0.114*** 0.090*** 0.160*** 1
Ln_traget 0.002 0.063** 0.053* 0.061* 0.176*** 0.147*** 0.175*** 1
Table II.
CMS

Model 1
success
Model 2
success
Model 3
Ln_pledge
Model 4
Ln_pledge
Model 5
success
Model 6
Ln_pledge
Like 0.898*** (0.178)
Support 0.650*** (0.177)
Ln_likenum 0.328*** (0.027)
Ln_supportnum 0.428*** (0.077)
Guanxi 2.018*** (0.296)
Guanxi_intensity 1.224*** (0.277)
Video 1.632*** (0.186) 1.661*** (0.183) 0.513*** (0.115) 0.628*** (0.121) 1.709*** (0.188) 0.638*** (0.122)
Ln_picture 0.406*** (0.101) 0.415*** (0.101) 0.195*** (0.054) 0.242*** (0.058) 0.427*** (0.103) 0.235*** (0.059)
Ln_wordcount 0.185 (0.072) 0.189* (0.069) 0.123** (0.043) 0.149*** (0.044) 0.216** (0.073) 0.159*** (0.044)
Ln_update 0.516*** (0.125) 0.366** (0.124) 0.470*** (0.065) 0.394*** (0.07) 0.069 (0.141) 0.350*** (0.073)
Ln_fans 0.917*** (0.088) 0.966*** (0.09) 0.709*** (0.052) 0.840*** (0.055) 0.894*** (0.09) 0.795*** (0.055)
Ln_duration 1.067*** (0.162) 1.050*** (0.162) 0.554*** (0.073) 0.643*** (0.079) 1.053*** (0.161) 0.671*** (0.079)
Perks 0.072 (0.05) 0.058 (0.045) 0.008 (0.023) 0.013 (0.024) 0.074 (0.048) 0.007 (0.024)
Ln_traget 0.400*** (0.07) 0.398*** (0.069) 0.419*** (0.044) 0.501*** (0.046) 0.359*** (0.069) 0.500*** (0.047)
Cons 0.291 (0.941) 0.204 (0.922) 0.635 (0.506) 0.146 (0.542) 0.268 (0.919) 0.215 (0.547)
Category FE YES YES YES YES YES YES
Month FE YES YES YES YES YES YES
Location FE YES YES YES YES YES YES
Observations 989 989 989 989 989 989
Pr2 0.387 0.379 0.401
r2 0.571 0.524 0.517
F 148.119 123.211 116.12
Notes: Standard errors in parentheses; *p<0.01; **p<0.005; ***p<0.001
Table III.
Regression results
Crowdfunding
success

Model 7
Ln_fundrate
Model 8
Ln_fundrate
Model 9
Ln_fundrate
Model 10
Ln_fundrate
Model 11
Ln_fundrate
Model 12
Ln_fundrate
Like 0.395*** (0.087)
Support 0.457*** (0.089)
Ln_likenum 0.669*** (0.107)
Ln_supportnum 0.286*** (0.023)
Guanxi 0.373*** (0.066)
Guanxi_intensity 1.251*** (0.24)
Video 0.604*** (0.1) 0.626*** (0.1) 0.622*** (0.099) 0.537*** (0.093) 0.637*** (0.1) 0.649*** (0.099)
Ln_picture 0.212*** (0.049) 0.224*** (0.05) 0.220*** (0.05) 0.182*** (0.045) 0.222*** (0.05) 0.216*** (0.05)
Ln_wordcount 0.116** (0.035) 0.112** (0.035) 0.126*** (0.035) 0.092* (0.034) 0.115** (0.035) 0.123*** (0.035)
Ln_update 0.446*** (0.058) 0.371*** (0.06) 0.231*** (0.066) 0.426*** (0.055) 0.360*** (0.06) 0.305*** (0.061)
Ln_fans 0.628*** (0.04) 0.662*** (0.041) 0.623*** (0.04) 0.552*** (0.039) 0.667*** (0.041) 0.623*** (0.041)
Ln_duration 0.556*** (0.066) 0.549*** (0.065) 0.569*** (0.065) 0.462*** (0.061) 0.539*** (0.066) 0.562*** (0.066)
Perks 0.004 (0.021) 0.012 (0.021) 0.001 (0.021) 0.004 (0.02) 0.009 (0.021) 0.004 (0.021)
Ln_traget 0.384*** (0.035) 0.385*** (0.035) 0.374*** (0.036) 0.454*** (0.032) 0.383*** (0.035) 0.382*** (0.036)
Cons 0.245 (0.462) 0.276 (0.456) 0.119 (0.456) 0.322 (0.424) 0.358 (0.454) 0.054 (0.458)
Category FE YES YES YES YES YES YES
Month FE YES YES YES YES YES YES
Location FE YES YES YES YES YES YES
Observations 989 989 989 989 989 989
r2 0.5 0.504 0.503 0.561 0.506 0.5
F 121.612 124.936 131.361 164.217 125.463 118.948
Notes: Standard errors in parentheses; *p<0.01; **p<0.005; ***p<0.001
Table IV.
Robustness check
CMS

reward-based crowdfunding platform in China, we found that guanxi plays an important
role in Chinese reward-based crowdfunding context.
Therearesomelimitationsinthispaper.First,theresultsofthisstudyareonlybasedonthe
largest crowdfunding platform in China. Whether the result of this study can be used to explain
other Chinese reward-based crowdfunding practice is still suspending. At this point, this study
is meant to describe what happens, but a more comprehensive study is needed to increase the
generalizability of the findings. A more systematic analysis based on more attainable data is
necessary to probe the success factors of the Chinese crowdfunding campaign. Second, this
paper only studies the influence of guanxi on crowdfunding success in the reward-based
crowdfunding context. Whether our findings can be used to explain project success and project
performance in other crowdfunding models is still unknown. Third, crowdfunding in China is
still emerging. Our research dataset which including 989 projects is relatively small when
compared to similar empirical crowdfunding studies based on Western markets.
This paper makes significant theoretical contributions. This paper is also one of the first
to examine the role of guanxi in the Chinese crowdfunding context. Existing crowdfunding
success literature tends to use project quality signals and social capital to explain
crowdfunding success universally. However, there is little literature on the effect of guanxi on
crowdfunding projects. This paper facilitates the understanding of crowdfunding success in
a relation-based emerging market by taking guanxi and guanxi intensity into consideration.
Our findings show that guanxi plays an important role in Chinese crowdfunding context.
The main reason for the significant relationship between guanxi and crowdfunding results is
because Chinese business market is relation-based. In terms of reward-based crowdfunding
market in China, as a new fundraising channel, regulations in this market are not only
inadequate but also incomplete. Therefore, project developers may overstate their project
qualities to get funded successfully. In a relation-based environment, the interpersonal
relationship is more important than regulations to form the trust. The measure of
interpersonal trust in China is guanxi. Guanxi has been long embedded in Chinese business
practice. Based on our results, we found that guanxi also plays an important role in the
crowdfunding context. Specifically, project developers’guanxi-establishing behavior
conducted both before launching and during fundraising significantly influences
crowdfunding success and fundraising performance in a positive way. In addition, the
intensity of such guanxi related behavior also matters to crowdfunding result. The
effectiveness of guanxi related factors is based on Chinese unique social characteristics. In
addition, our findings also extend the trust theory and signaling theory by taking guanxi as a
signal to establish trust. Further, this paper provides a starting point to examine Chinese
crowdfunding phenomenon. It is of great value to explore crowdfunding practice in different
cultural and social backgrounds which are enrichments of crowdfunding literature.
Besides, this paper also provides some practical implications for crowdfunding platform
creators and project developers. First, it is important for project developers to provide
detailed project information of their projects such as detailed project description, descriptive
video and vivid pictures. These quality signals will make potential funders feelthese projects
are of high quality. At the same time, project developers should also establish and maintain
guanxi with the potential funders both before and after launching their projects. To
strengthen the guanxi, project developers should conduct repeated reciprocity interaction
with funders through posting updates and answering questions. Second, Chinese reward-
based crowdfunding platform creators should offer different ways to facilitate the guanxi
establishment and maintenance process between project developers and funders. For
example, the crowdfunding platform should embed some instant chatting tools on projects’
websites tofacilitate interactions between project developers and funders.
Crowdfunding
success

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Corresponding author
Liang Zhao can be contacted at: liang.zhao@uia.no
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