Faculty of law blogs / UNIVERSITY OF OXFORD

Information Intermediation in Opaque Markets: Evidence from Equity Crowdfunding Analyst Reports


Gregory Burke
Visiting Assistant Professor of Accounting at the Kelley School of Business at Indiana University.


Time to read

4 Minutes

This post describes the main findings from ‘Information Intermediation in Opaque Markets: Evidence from Equity Crowdfunding Analyst Reports’, where I study investors’ response to analyst report recommendations in the U.S. equity crowdfunding (ECF) market. I begin my analysis by showing the determinants of analyst report production in this market. Then, I find analyst recommendations are associated with daily investment pledges as well as the occurrence and success of future ECF offerings. To my knowledge, this is the first study in the U.S. ECF literature to construct an event study exploiting daily investment activity to test a hypothesis. Additionally, my paper provides significant background of the ECF regulatory environment for those interested in this transaction exemption.

The passage of the Jumpstart Our Business Startups (JOBS) Act of 2012 legalized ECF in the U.S. and tasked the Securities and Exchange Commission (SEC) with crafting the rules to allow start-up firms to issue securities to accredited and non-accredited investors over Internet based platforms. At its signing, President Barack Obama referred to the bill as a ‘potential game changer’ noting ‘for the first time, ordinary Americans will be able to go online and invest in entrepreneurs that they believe in.’ In mid-2016 the SEC adopted the regulatory framework necessary for U.S. entrepreneurs to issue ECF securities to the public. Since then, over 6,000 ECF offerings have launched with approximately 500–700 active at any given time (as of June 2023). In 2022, 1,500 Regulation Crowdfunding (Reg CF) offerings closed with $500 million invested by 400 thousand investors, whereby the average investor contributes approximately $1,100. The ECF market is expected to grow rapidly with a compound annual rate of over 15%, potentially supplanting other early stage capital markets, such as venture capital. However, despite its growth, this market is characterized by high information opacity, primarily due to the nature of start-up firms and the limited disclosure requirements.

KingsCrowd (KC) entered the U.S. ECF market in 2018 as a subscription-based online information intermediary with the goal of democratizing investment by assisting investor decision making with unbiased professional research. Currently, KC offers the only independent professional service in this market, across all international jurisdictions, providing subscribers in-depth analyst reports on select offerings as their premier information intermediation product.

Whether and to what extent ECF investors find analyst report recommendations useful is ex ante unclear. On the one hand, KC reports may contain information useful to investors given (1) the ECF market is characterized by high market opacity, (2) retail investors, the primary capital providers in this market, are information sensitive and may outsource their information processing by relying on third-party signals, and (3) KC is not subject to standard conflicts of interests faced by sell-side analysts in other public equity markets, due to their independence from issuers and platforms, potentially increasing their credibility. On the other hand, KC reports might have limited impact because (1) investors may not pay the KC subscription fee, (2) KC reports may be too untimely to inform investing since pledging is highest at the beginning of an offering, (3) investors have herding tendencies, (4) investors have little ability to evaluate recommendation accuracy as a result of resale restrictions and secondary market illiquidity, (5) investors’ decisions may be driven by non-pecuniary motives, and (6) relatedly, the fact that KC is the only surviving analyst internationally suggests ECF investors may have no use for information intermediation services. Therefore, given these competing arguments, coupled with the vast literature identifying conditions under which investors discount sell-side analyst recommendations, it is ex-ante unclear whether U.S. ECF investors use KC reports when making investing decisions in this understudied market.

Main Findings:

Since KC does not provide reports for every offering, I begin by estimating a determinant model of report production using a sample of all Reg CF offerings that closed from 2018–2022. I find investor interest, expected firm success, and the richness of the information environment are positively correlated with report generation, providing the first empirical insights into independent information production within this market. Beyond describing the report production decision, my determinant model serves as a first-stage Heckman selection model to control for selection effects when studying investment pledge sensitivity to report recommendations conditioned on the subset of offerings with a KC report.

Histogram of KC Page Traffic











Weeks to Report











Turning to the empirical analysis of KC analyst report recommendations, I first consider whether users acquire KC analyst reports via KC web analytics. I find a 136% (298%) increase in the average weekly web traffic (platform click-throughs) the week a report is released. Such evidence of KC report acquisition is a necessary condition to detect downstream investment effects among the entire population of investors. In terms of actual investment decisions, I find a one-unit favorable increase in a KC analyst report recommendation is associated with a 17–19% increase in average daily investment pledging. Further, my analysis shows this average effect is more heavily concentrated in the first three weeks following the release of a report whereby a one-unit favorable increase in report recommendation is associated with a 22–28% increase in average daily investment pledges. In terms of dollar magnitude, a one unit increase in report favorableness is associated with a $25,076 increase in investment pledges over the nine weeks following the report release. This effect is robust to controlling for selection effects using an Inverse Mills Ratio, offering fixed-effects, and a propensity score matched control group. When considering long-term effects, I find KC report recommendations are associated with ending capital contributions, total investor participation, the probability of a future ECF offering, and the amount of capital raised in future ECF offerings.


This paper provides the first evidence, to my knowledge, that investors use information intermediation in a crowdfunding market by studying how U.S. ECF investors respond to KC analyst reports. This evidence improves our understanding of the U.S. ECF information environment as well as how market participants operate in (1) informationally scarce environments where (2) investors are resource constrained. Specifically, I find U.S. ECF investors acquire and integrate KC report recommendations in their investment decisions. These inferences are robust to various empirical design decisions as well as web analytics and daily investment pledge data. Taken together, my results provide evidence consistent with the notion that investors use KC reports in an economically meaningful way.

The author's complete article is available here.

Greg Burke is a Visiting Assistant Professor of Accounting at the Kelley School of Business at Indiana University.


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