A sense of risk: Responses to crowdfunding risk disclosures

Abstract

AbstractResearch SummaryThis paper examines how reward‐based crowdfunding backers respond to risk disclosures. Combining theoretical frameworks from financial accounting with the risk perception literature, we adopt an abductive research approach to explore various nuances that influence backers' tolerance for risk information. In addition to identifying the general dynamics in backers' risk interpretation, we highlight the complexities introduced by differences in the disclosure's semantic content, expressed feelings, and the discloser's background attributes. Relying on a hierarchical Bayesian mixture model, we first identify a positive curvilinear relationship between risk information quantity and crowdfunding success. We then demonstrate the influences of what is disclosed, how it is disclosed, and who discloses it, while emphasizing the context‐bound specificities of individual project types.Managerial SummaryOur study aids entrepreneurs to effectively communicate risks in reward‐based crowdfunding campaigns. We consistently find that entrepreneurs provided substantially less risk information than the optimum amount of information, emphasizing the need for more extensive disclosures. On what to disclose, backers favored information on risks that are consequential to them personally and not those that affect the entrepreneur's project. On how to disclose, expressed feelings had little influence on how much risk information backers preferred. However, who provides the disclosure was crucial, as trust‐enhancing factors increased backers' appetite for risk information. Together, our findings show that, while communicating risks, entrepreneurs should be cognizant that online backers undertake calculative evaluations and have material motivations. Furthermore, our category level results aid entrepreneurs in making practical judgments on context‐specific deviations across project types.