Economic consequences of risk disclosures: Evidence from crowdfunding

Joshua M. Madsen, Jeff L. McMullin

Research output: Contribution to journalArticlepeer-review

38 Scopus citations


On September 20, 2012, the rewards-based crowdfunding platform added a ''risks and challenges'' section to all project pages. While the section header became a mandatory part of the platform, discussion of risks within that section is voluntary and unverified, making this setting particularly useful for identifying the effects of disclosure on both crowdfunders and entrepreneurs. Consistent with increased salience of risks, we find that backer support for high-risk projects decreases after the introduction of this section, but that lengthier risk disclosures mitigate this decrease in backer support. Further analysis reveals that creators who provide lengthier risk disclosures also increase other non-risk disclosures, and that these non-risk disclosures are primarily responsible for the increased backer support. Collectively, we provide evidence that the introduction of a voluntary and unverified risk disclosure reduced information asymmetry within this unregulated market.

Original languageEnglish (US)
Pages (from-to)331-363
Number of pages33
JournalAccounting Review
Issue number4
StatePublished - Jul 2020

Bibliographical note

Funding Information:
We are grateful for comments and suggestions from two anonymous referees, Cyrus Aghamolla, Mark Bagnoli, Daniel Beneish, Lori Shefchik Bhaskar, Gordon Burtch, Hans Christensen, John Donovan (discussant), Frank Gigler, Leslie Hodder, Kai Wai Hui (discussant), Michael Iselin, Chandra Kanodia, Kevin Koharki, Patrick Martin, Xiumin Martin (discussant), Brian Miller, Amy Sheneman, Marcy Shepardson, Brady Twedt, Rodrigo S. Verdi (editor), Jessica Watkins, Dan Way, Teri Yohn, and workshop/conference participants at the 2018 Financial Accounting and Reporting Section (FARS) Midyear Meeting, The Pennsylvania State University 2018 Accounting Research Conference, 2018 Midwest Accounting Research Conference, INSEAD, and Florida State University. Financial support was provided by the University of Minnesota Carlson School of Management and Indiana University Kelley School of Business.

Publisher Copyright:
© 2020 American Accounting Association. All rights reserved.


  • Crowdfunding
  • Disclosure
  • Information asymmetry
  • Risk disclosures
  • Salience


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