When cultural distance meets international entrepreneurship: The inverted U-shaped impact of cultural distance on crowdfunding transactions between countries

Abstract

The influence of cultural distance on crowdfunding transactions for innovative projects has been relatively neglected in scholarly discourse. Past investigations have focused either on the beneficial effects of a cultural premium or on the adverse impacts of a cultural discount. This article contributes to international entrepreneurship by examining the overall impact of cultural distance on crowdfunding transactions while simultaneously incorporating both the cultural premium and cultural discount frameworks. The analysis is conducted using a structural gravity model. It focuses on how two concurrent mechanisms operate in crowdfunding for innovation: cultural premium, in which distant cultures are perceived as novel, and cultural discount, in which these cultures are difficult to comprehend. A certain level of cultural dissimilarity may enhance a project's perceived novelty, but beyond that point, the cognitive distance between cultures grows so large that it impedes mutual understanding. Arguing that increases in cultural distance accentuate cultural novelty and attenuate cultural understandability, the multiplicative interplay of these two forces creates an inverted U-shaped relationship between cultural distance and intercountry crowdfunding transactions. An analysis of 3906 country pairs encompassing 11,710,692 Kickstarter transactions supports an inverted U-shaped relationship. • A gravity model was used to examine the link between cultural distance and cross-border entrepreneurial transactions. • Cultural premium increases perceived novelty in foreign campaigns. • Cultural discount attenuates the understandability of foreign campaigns. • Cultural distance has an inverted U-shaped effect on international crowdfunding transactions. • The inverted U-shaped relationship applies to both culturally expressive and less expressive product categories.