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

49 Pages Posted: 14 Jun 2022 Last revised: 3 Mar 2023

See all articles by Nicole L. Cade

Nicole L. Cade

University of Pittsburgh - Accounting Group

Shannon Garavaglia

University of Pittsburgh - Accounting Group

Vicky B. Hoffman

University of Pittsburgh - Katz Graduate School of Business

Date Written: February 27, 2023

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

Suggested Citation

Cade, Nicole L. and Garavaglia, Shannon and Hoffman, Vicky B., Why Some Investors Avoid Accounting Information: Identifying a Psychological Cost of Information Acquisition using the Securities-Based Crowdfunding Setting (February 27, 2023). Available at SSRN: https://ssrn.com/abstract=4130407 or http://dx.doi.org/10.2139/ssrn.4130407

Nicole L. Cade (Contact Author)

University of Pittsburgh - Accounting Group ( email )

United States

Shannon Garavaglia

University of Pittsburgh - Accounting Group ( email )

United States

Vicky B. Hoffman

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States
412-648-1627 (Phone)

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