Unintended Consequences of Interactive Information Disclosure: Examining the Effect of Investor Panels on Equity Crowdfunding
36 Pages Posted: 7 Sep 2022
Date Written: July 10, 2022
Equity crowdfunding has become an increasingly popular financial source for startups. However, most equity crowdfunding investors are nonprofessional investors and thus inexperienced. To help inexperienced investors fund startups, which are high risk, equity crowdfunding platforms are designing various effective information disclosure mechanisms to protect investors and improve market efficiency. One new feature introduced is the investor panel, which provides interactive information disclosure for investors. In this study, we are motivated to investigate the effectiveness of the investor panel feature on the fundraising performance of startups. We exploit a natural experiment on Wefunder, which is a leading equity crowdfunding platform, to understand the change in fundraising performance before and after the introduction of the investor panel feature in May 2020. In addition, we analyze the effect of the lead investor feature, which displays the professional investors of a crowdfunding campaign. The results of the analysis of a campaign-week panel dataset collected between June 2019 and February 2021 indicate that investor panels decrease the fundraising performance of startups in terms of fundraising amount and number of investors. Compared with campaigns with lead investors, the hindering effect of investor panels becomes more salient in campaigns without lead investors. To further uncover the underlying mechanisms, we performed text mining analysis on investors comments posted on Wefunder. Results reveal that potential investors post few and negative comments after the launch of the investor panel feature. Our study contributes to the information disclosure research stream of the crowdfunding literature by challenging the common convention on the positive side of information disclosure. Moreover, our study provides practical implications on campaign information management to crowdfunding entrepreneurs and platforms.
Keywords: Equity crowdfunding, Interactive information disclosure, Investor panel, Lead investor
JEL Classification: G24, M15
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