Platform-provided Disclosure on Investor Base and Entrepreneurial Success: Evidence from Crowdfunding

Abstract

We employ a sharp regression discontinuity design to identify the causal effects of investor base disclosure on funding outcomes and entrepreneurship success. Starting from February 2016, Kickstarter discloses backer statistics including geographic locations and previous funding experience of the backers once the number of backers for a project reaches 10. Exploiting this discontinuity, we show that the disclosure of investor base information increases the likelihood of funding success by 10% and the amount of funds pledged by 13%. The effect is more pronounced when the project quality is high and for projects with less credible creators, high ex-ante uncertainty, high information asymmetry between creators and backers, and high expected payoff for backers. We also find that investor base disclosure increases the likelihood of product delivery. A policy change analysis with a much larger sample confirms the external validity of our findings.

Keywords: crowdfunding, self-regulation, disclosure, investor base, information asymmetry, discrete RDD, unregulated markets

JEL Classification: M41, G24, L15, O31, D04