Home Bias in Online Investments: An Empirical Study of an Online Crowdfunding Market

• Published in: Management science Vol. 62; no. 5; pp. 1393 - 1414
• Main Authors: Lin, Mingfeng, Viswanathan, Siva
• Format: Journal Article
• Language: English
• Published: Linthicum INFORMS 01.05.2016; Institute for Operations Research and the Management Sciences
• Subjects: behavioral explanations; Bias; Crowdfunding; Economic aspects; Finance; home bias; Investments; Management styles; natural experiment; Online transaction processing; peer-to-peer lending; Prejudices; quasi-experiment; Quasi-experimental methods; Rationality; Social aspects; Transactions
• ISSN: 0025-1909; 1526-5501
• DOI: 10.1287/mnsc.2015.2206

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 .