58 Pages Posted: 27 Jun 2016 Last revised: 13 Mar 2017
Date Written: June 27, 2016
We use hand-collected data of 20,460 investment decisions and two distinct portals to analyze whether investors in equity crowdfunding direct their investments and portfolios to local firms. The results suggest that investors exhibit a local bias, even when controlling for family and friends. In addition to the regular crowd, our sample includes angel-like investors who invest considerable amounts and exhibit a larger local bias. By contrast, well-diversified investors are less likely to suffer from this behavioral anomaly. The data further show that portal design is important for attracting investors more prone to having a local bias. Overall, we find investors who direct their investments to local firms pick more often start-ups that run into insolvency or are dissolved. However, here again portal design plays a crucial role. Finally, firms engaging in equity crowdfunding overcome funding barriers by attracting investors at all distances.
Keywords: Equity crowdfunding, Crowdinvesting, Local bias, Individual investor behavior, Entrepreneurial finance
JEL Classification: G11, G24, K22, M13
Suggested Citation: Suggested Citation
Hornuf, Lars and Schmitt, Matthias, Does a Local Bias Exist in Equity Crowdfunding? (June 27, 2016). Max Planck Institute for Innovation & Competition Research Paper No. 16-07. Available at SSRN: https://ssrn.com/abstract=2801170 or http://dx.doi.org/10.2139/ssrn.2801170