The Role of Expertise and Risk Diversification Strategies in Equity Crowdfunding
Keywords:
Equity crowdfunding, investor demographics, financial literacy, investor expertiseAbstract
This study had the objective to determine the characteristics of investors willing to fund start-ups through crowdfunding platforms. In contrast to what prior empirical research suggests, including in personal investment literacy literature and economic literature of household portfolios, demographic factors such as gender, age, or formal education level were not highlighted as statistically significant in the empirical analysis explaining the investor's expertise in equity crowdfunding. Conversely, household income and working status were critical determinants of this equity crowdfunding strategy. We state that learned skills and solid financial wealth matter more than demographics explaining investors' expertise in picking stocks in equity crowdfunding. We examine the determinants of the risk diversification strategy in equity crowdfunding and found that formal education, working status, and assessed investor profile had statistical significance in explaining the relationship. According to the results, we expect that individuals with a higher level of formal education, higher working status, but with lesser investment experience would diversify more and spread risk when allocating money in early-stage start-ups through equity crowdfunding projects. However, either age or the Investor's wealth and income level would not be good predictors of risk diversification strategy.
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