Putting your money where mouth is: Role of electronic word-of-mouth on new venture funding

In this paper we study the effect of electronic word-of-mouth (eWOM) on a new venture firm's performance. Given that new firms do not have a history of financial and accounting information, the effect of eWOM is more pronounced on new venture firms as compared to established firms. Based on institutional theory, signal theory and screening theory we developed a set of hypotheses to empirically assess the impact of eWOM. Our findings suggest that eWOM affects new venture firm performance only in consumer-related industries. Consistent with information cascade theory, we find that the eWOM is seeded and initiated by influential bloggers, and then quickly imitated by non-influential bloggers. Our analysis can help develop risk assessment tools for new ventures in pursuing this important channel of communication.