Geographical Insights into the Reward-Based Crowdfunding Market of the European Union

Abstract

Geographical biases in investment decisions, where investors favor domestic assets, remain a persistent puzzle in international macroeconomics. Despite numerous rational theories, these biases often defy explanation. The rise of online crowdfunding, which fosters peer-to-peer interactions, promises to overcome geographical limitations and bring a more globalized approach to funding. Yet, many studies continue to reveal that investors tend to favor local opportunities. In light of this, we argue that rather than broad international studies, future research should focus on specific regions where economic, political, and cultural similarities might shape investor behavior. The European Union (EU), an area that has been largely overlooked in this context, provides a unique setting for such an analysis. Our exploratory study delves into the reward-based crowdfunding market within the EU, examining the geographical distribution of projects and funders, the biases within this market, and their impact on funding success. We observe that the EU market is highly concentrated in its largest economies. By employing Quasibinomial-Logit-Regression and linear regression models, we find evidence of strong national proximity biases and no significant evidence of cross-border funding biases among EU member states. Additionally, our regression results reveal that these home-country preferences have a detrimental effect on funding success, as funders from more distant regions tend to contribute higher amounts. These findings provide valuable insights into the dynamics of geographical biases and their consequences in the EU crowdfunding landscape.