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Information Disclosure and Crowdfunding: An Empirical Analysis of the Disclosure of Project Risk

Time:2016-12-23 15:55:24  Hits:[]

Since information asymmetry between funders and creators is a critical issue in crowdfunding, many strategies have been introduced to dampen it and make markets more efficient and sustainable. In this research, we examine one such possible mechanism, namely a platform-wide rule to require the disclosure of project risk, to assess whether and how disclosed risk information affects the behaviors of market participants. We examine this question on a popular crowdfunding site using multiple empirical approaches such as a differences-in-difference design, an online experiment, and a machine learning method. We find that the introduction of the new disclosure policy decreased the creation of new projects, even successful ones. Our additional analyses show that the effect is stronger for creators bearing a larger burden from the new disclosure requirement in technology projects while there is no significance difference in the effect in non-technology projects. Our online experiments imply that the decrease is partly driven by the negative perceptions of funders about the risk information disclosed, which discourages them from participating on the platform. We also conduct a text mining analysis and find that, consistent with our online experiment, the level of project risk disclosed in the risk description is negatively associated with the success of a project campaign. Overall, our study provides implications for disclosure policies in crowd-based marketplaces and guidance for project creators.
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