Investors’ Information Avoidance Behavior in Securities-Based Crowdfunding

Abstract

We conduct two experiments in the securities-based crowdfunding setting to investigate whether some investors avoid accounting information for psychological reasons and the consequences for investment decisions. We find in our first experiment that nonprofessional investors sometimes choose not to acquire a potential investment’s financial statements to avoid the psychological discomfort they expect from evaluating financial information. Further, despite this lack of due diligence in the high-risk crowdfunding environment, we find that the investors who avoid (versus acquire) a company’s financial statements are more willing to invest in its offering. Our second experiment demonstrates investors randomly assigned to not having (versus having) the same financial statements continue to be more willing to invest, suggesting even investors who would choose to avoid financial statements would use them if crowdfunding companies were required to display them prominently. Together, the findings indicate investors who anticipate discomfort from evaluating financial information disadvantage themselves by choosing not to acquire information they would integrate into their decisions. Our results provide one behavioral explanation for investors’ documented underuse of accounting information.