Abstract

Crowdfunded microfinance research has primarily examined how campaign initiators present campaign information to mitigate information asymmetry, while largely neglecting the critical role of microfinance institutions (MFIs). Drawing on signaling theory, we argue that borrowers’ affiliation with MFIs constitutes a salient third-party signal and that MFIs shape backers’ perceptions of repayment risk through their voluntary risk information disclosure decisions. We develop a theoretical model that incorporates backers’ altruistic motivations and risk concerns and analyze how MFIs’ prosocial orientation and risk level jointly influence their incentives to disclose risk information. We further examine how such disclosure affects crowdfunding performance as a downstream consequence of disclosure. Our examination of 439,587 loan projects associated with 236 MFIs supports the theoretical predictions. We find an inverted U-shaped relationship between MFIs’ risk level and risk information disclosure, and show that MFIs with stronger prosocial orientation are more likely to disclose risk information. Moreover, risk information disclosure improves funding performance primarily by increasing the number of backers rather than the average contribution per backer. Overall, this study fills an important gap in the prosocial crowdfunding literature by elucidating the dynamics of MFIs’ risk information disclosure decisions and offers practical insights for platforms seeking to improve risk information management.

DOI

10.17705/1jais.01034

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