Why Some Investors Avoid Accounting Information: Identifying a Psychological Cost of Information Acquisition using the Securities-Based Crowdfunding Setting

Abstract

We conduct an experiment in the securities-based crowdfunding setting to investigate whether some investors avoid accounting information for psychological reasons, even when they understand the information is useful in their decision-making. Results suggest investors who experience relatively more psychological discomfort when working with quantitative information are relatively less likely to acquire the financial statements of a potential crowdfunding investment. Importantly, this effect is incremental to any effect of investors’ quantitative ability (i.e., their numeracy) and attenuates with an intervention designed to help investors overcome their psychological discomfort. Altogether, the results extend our understanding of the theory of information avoidance, provide a behavioral explanation for investors’ documented underuse of accounting information, and can inform regulators as they revise crowdfunding regulations.

Keywords: information avoidance, information acquisition, financial technology, securities-based crowdfunding, Regulation Crowdfunding, disclosure simplification

JEL Classification: G11, G41, M41