Home Bias in Online Investments: An Empirical Study of an Online Crowdfunding Market
Mingfeng Lin, Siva Viswanathan
Management Science · 2016 · Volume 62 · Issue 5
Abstract
An extensive literature in economics and finance has documented home bias , the tendency that transactions are more likely to occur between parties in the same geographical area rather than outside. Using data from a large online crowdfunding marketplace and employing a quasi-experimental design, we find evidence that home bias still exists in this virtual marketplace for financial products. Furthermore, through a series of empirical tests, we show that rationality-based explanations cannot fully explain such behavior and that behavioral reasons at least partially drive this remarkable phenomenon. As crowdfunding becomes an alternative and increasingly appealing channel for financing, a better understanding of home bias in this new context provides important managerial, practical, and policy implications. This paper was accepted by Lee Fleming, entrepreneurship and innovation .
Keywords
home bias, peer-to-peer lending, quasi-experiment, crowdfunding, behavioral explanations, natural experiment
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