Does a Local Bias Exist in Equity Crowdfunding?

Arbeitspapier

We use hand-collected data of 20,460 investment decisions and two distinct portals to analyze whether investors in equity crowdfunding direct their investments to local firms. In line with agency theory, the results suggest that investors exhibit a local bias, even when we control for family and friends. In addition to the regular crowd, our sample includes angel-like investors, who invest considerable amounts and exhibit a larger local bias. Well-diversified investors are less likely to suffer from this behavioral anomaly. The data further show that portal design is important for attracting investors more prone to having a local bias. Overall, we find that investors who direct their investments to local firms more often pick start-ups that run into insolvency or are dissolved, which indicates that local investments in equity crowdfunding constitute a behavioral anomaly rather and a rational preference. Here again, however, portal design plays a crucial role.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 8154

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies ; Business and Securities Law ; New Firms; Startups
• Subject: equity crowdfunding ; crowdinvesting ; local bias ; individual investor behavior ; entrepreneurial finance

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hornuf, Lars ; Schmitt, Matthias ; Stenzhorn, Eliza
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/216550
• Last update: 10.03.2025, 11:45 AM CET