Invest in what you know? How customer investors react to corporate restatements

It is increasingly common for individuals to be both customers of, and investors in, a company. Despite their prevalence, we have little understanding of whether customer investors' investment judgments differ from those of non-customer investors. Using three experiments, we examine how customer investors' judgments differ from those of non-customer investors in the wake of an earnings restatement, and how customer investors respond to company-issued disclosures that include favorable information designed to mitigate the effects of the restatement. Drawing on prior marketing research, we predict and find that customer investors identify more strongly with the company and sell fewer shares in response to a restatement than non-customer investors. Further, unlike non-customer investors, customer investors’ judgments are not influenced by favorable information in a company-issued disclosure. Our results have implications for companies that are actively encouraging customer-investor relationships and for investors themselves.