Evidence of Optimistic Bias and Mixed Crowd Wisdom in Equity Crowdfunding Forecasts

Article
Journal of Accounting,
Auditing & Finance
Is There Crowd Wisdom in 2021, Vol. 36(4) 723–749
ÓThe Author(s) 2020
Accounting? Evidence From Article reuse guidelines:
sagepub.com/journals-permissions
Forecasts in Equity-Based DOI: 10.1177/0148558X20912100
journals.sagepub.com/home/JAF
Crowdfunding
Koren M. Jo1 and Shuo Yang1
Abstract
In this article, we study detailed financial forecasts provided by entrepreneurs who seek
funds via equity-based crowdfunding on a leading U.K. platform. We investigate (a) what
forecast signals investors react to, (b) whether investors can filter out the optimistic bias in
forecasts, and (c) whether forecasts are predictive of a venture’s likelihood of survival. We
provide strong evidence that entrepreneurs systematically overestimate sales, earnings,
profit margin, and assets, and underestimate leverage. Despite the poor forecast quality,
investors incorporate forecasted sales, subsequent equity and debt financing, and dividend
payments in their investment decisions, but they do not react strongly to other signals.
Some evidence suggests that investors are able to detect ex post optimistically biased fore-
casts among funded projects. However, none of the forecast signals investors react to can
predict a higher likelihood of a venture’s survival. Overall, we find mixed evidence regarding
crowd wisdom in accounting in the equity-based crowdfunding market.
Keywords
crowdfunding, crowd wisdom, financial forecast, optimistic bias, equity-based
Introduction
Crowdfunding is an emerging but sizable industry that connects entrepreneurs of early-
stage ventures directly with retail investors. The estimated market size of crowdfunding
was US$34 billion worldwide as of 2015 (Massolution, 2015) and is expected to reach
US$93 billion by 2025 (World Bank, 2013). Crowdfunding widens the investment opportu-
nity set for investors and the pool of potential funds for entrepreneurs. However, regulators
are concerned that entrepreneurs might disclose overly optimistic information to mislead
investors who may not be sophisticated enough to understand early-stage ventures
(Financial Conduct Authority [FCA], 2015).1 uFundingPortal (UFP, LLC), an equity-based
crowdfunding platform, became the subject of the first enforcement action against a plat-
form by the Financial Industry Regulatory Authority (FINRA). This action was for not
1
The Hong Kong Polytechnic University, Kowloon, Hong Kong
Corresponding Author:
Shuo Yang, School of Accounting & Finance, The Hong Kong Polytechnic University, M726, Li Ka Shing Tower,
Hung Hom, Kowloon, Hong Kong.
Email: shuo.s.yang@polyu.edu.hk
724 Journal of Accounting, Auditing & Finance
exercising due diligence to prevent listings by 16 issuers that ‘‘had an impracticable busi-
ness model, oversimplified and overly optimistic financial forecasts, and other warning
signs’’ (FINRA, 2016). Therefore, we examine the quality of issuers’ disclosures to better
understand the efficiency of the burgeoning crowdfunding market. Although it is difficult
to establish and quantify the degree of optimism in entrepreneurs’ textual or qualitative dis-
closures, quantitative disclosures such as financial forecasts can be used to gauge disclosure
quality. Moreover, we test how investors respond when presented with quantitative infor-
mation that is verifiable ex post.
This article exploits a unique requirement imposed by the British crowdfunding website
Crowdcube on its entrepreneurs: projects with relatively mature products must provide
investors with forecasted financial statements. Projects launched on Crowdcube are predo-
minantly from firms incorporated in the United Kingdom with registration numbers, where
the law mandates that even private firms file financial statements with the United
Kingdom’s registrar of companies, Companies House. By examining detailed, verifiable
financial forecasts in crowdfunding, we address (a) whether investors react to forecast sig-
nals that are very likely to be optimistically biased; (b) whether investors can filter out the
optimistic bias in forecasts; and (c) whether forecast signals, especially those that investors
respond to, can predict a project’s future success.
Early-stage ventures are prone to failure and ‘‘unicorns’’ (i.e., private startups valued at
more than US$1 billion) are rare. Nevertheless, many entrepreneurs exist. This ‘‘entrepre-
neurship puzzle’’ is usually attributed to entrepreneurs’ optimism (Åstebro et al., 2014), but
proof of such optimism is mostly based on surveys or crude measurements.2 A comparison
between forecasted financial statements on Crowdcube and realized financial statements
from Companies House can provide strong evidence of entrepreneurs’ optimistic bias in the
crowdfunding market.
Given the likely bias in forecasts provided by entrepreneurs, we ask whether investors
will incorporate forecast signals into their investment decisions, and whether they can do
so rationally by discounting the bias. Studies of publicly traded firms suggest that retail
investors underuse or misuse accounting information, resulting in market anomalies (e.g.,
Bernard & Thomas, 1989; Sloan, 1996). Whether investors can rationally extract forecast
signals for investment decisions in private equity is less clear. For example, Mollick and
Nanda (2016) find ‘‘crowd wisdom’’ rather than ‘‘crowd madness’’ in evaluating theater
projects on the reward-based crowdfunding platform Kickstarter, and we suggest that
crowd wisdom may also extend to accounting information. Finally, using a venture’s future
company status, we explore the relation between forecasts and a real postfunding
consequence—a venture’s likelihood of survival. If entrepreneurs use forecasts to express
their confidence in themselves or their ventures and this confidence is not ill-placed, then
their ventures should be more likely to survive.
We tracked Crowdcube from February 2014 through June 2017 (when the availability of
forecasts became limited) and compiled a sample of 614 pitches that contain forecasts. We
find a strong optimistic bias in forecasts: most entrepreneurs overestimate sales, earnings,
profit margin, and total assets, and underestimate leverage. Among firms that seek multiple
rounds of funding, there is a consistent pattern of walking down forecasts in the later
rounds. Despite these biased forecasts, some forecast signals are associated with funding
outcomes. Specifically, larger forecasted sales, lack of dividend payouts, and subsequent
equity and debt financing attract more funds and investors, but higher profitability does
not. We find some evidence that more optimistic forecasts (compared with realizations) are
associated with lower levels of funds and fewer investors among funded firms. However,
Jo and Yang 725
there is no evidence that the forecast signals investors react to predict a project’s survival.
These findings with respect to crowd wisdom in accounting are therefore mixed.
Our study contributes to the emerging literature on crowdfunding, and in particular to
equity-based crowdfunding research. We are unaware of published or publicly available
research that examines detailed accounting information disclosed in equity-based crowd-
funding, or that associates accounting information from a pitch with ex post consequences.
Our examination of financial forecasts highlights the difference between reward-based
and equity-based crowdfunding, which is analogous to the difference in vendor–buyer and
manager–investor contractual arrangements. Individuals backing reward-based crowdfund-
ing simply receive products or services in exchange for their funds; they have no need for
forecasted financial statements because they do not have a direct stake in the venture’s
future cash flows.
Our study should be of interest to regulators that monitor the crowdfunding market, par-
ticularly those in countries that do not follow the U.S. model, where the disclosure require-
ments for equity-based crowdfunding are almost as stringent as for traditional initial public
offers (Mirabile, 2016).3 This article highlights the problem that arises when the regulation
of issuers’ information disclosure is left at the discretion of the crowdfunding platforms,
leaving investors vulnerable.
The remainder of this article is organized as follows. Section ‘‘Development of
Hypotheses’’ develops our hypotheses. Section ‘‘Research Design’’ discusses the research
design. Section ‘‘Sample Selection’’ details the sample selection. Section ‘‘Empirical
Results’’ presents the empirical results, and Section ‘‘Conclusion’’ concludes the article.
Development of Hypotheses
Significant information asymmetry exists between entrepreneurs and investors for early-
stage ventures. These ventures are young, risky, and uncertain, and information about them
is scarce. Although forecasts appear to appeal to investors, these forecasts can be of ques-
tionable quality. Despite the high failure rate and low payoff to entrepreneurship, many
entrepreneurs exist. Entrepreneurs’ optimism can be rationally explained. Van den Steen
(2004) demonstrates through a model similar in spirit to the ‘‘winner’s curse’’ that agents
will choose a career path in which they overestimate the chance of success, and agents who
are not optimistic about their entrepreneurial success will not become entrepreneurs in the
first place. Alternatively, psychologists often attribute entrepreneurs’ optimism to cognitive
biases such as the ‘‘better-than-average’’ effect or the ‘‘illusion of control’’ (Larwood &
Whittaker, 1977). Consistent with these, Cassar (2010) finds that entrepreneurs in the pro-
cess of starting new ventures (not through crowdfunding) overestimate future sales and
employment. The minimal level of due diligence conducted by crowdfunding platforms
likely further enables entrepreneurs’ overly optimistic assertions (Mashburn, 2013).
Therefore, entrepreneurs’ optimism is likely to be revealed when they are required by the
crowdfunding platform to make quantitative forecasts.4
Regardless of entrepreneurs’ optimism, information disclosed to crowdfunding platforms
can be fraudulent.5 The various enforcement actions against crowdfunding platforms or
campaigns (Federal Trade Commission [FTC] v. Erik Chevalier, Securities and Exchange
Commission [SEC] v. Ascenergy, and FINRA v. UFP) offer a glimpse of the false promises
crowdfunding investors are exposed to and the hefty amount of money crowds can be col-
lectively swindled out of (FINRA, 2016; FTC, 2015; SEC, 2015). Because prospective dis-
closure is predictably optimistic or even fraudulent, it is possible that investors will ignore
the information when making investment decisions, and focus more on tangible information
such as the equity stake on offer.
Nevertheless, detailed financial forecasts might provide useful information from which
investors can extract signals, especially when other types of information are scarce. The
entrepreneurial finance literature finds that funding is sensitive to signals alleviating
uncertainty in four areas: (a) product or service characteristics; (b) market or industry char-
acteristics; (c) entrepreneurial team characteristics; and (d) investment or financial charac-
teristics (e.g., exit potential, valuation, and rate of return) (Bapna, 2019). Financial
forecasts can provide summary statistics for all of these areas. For example, a unique, well-
received, and widely used product or an effective management team can translate into high
sales, sales growth, or profit margin. Michels (2012) shows that in the peer-to-peer lending
setting, even qualitative, unverifiable, and unstructured disclosures provided by lenders are
associated with reduced interest on personal loans. Our setting is a similarly unmediated,
person-to-person online platform, but with forecasted financial statements that are more
formulated than the textual, free-style disclosures studied by Michels (2012). In addition,
the projects are tied to registered entities and information about both firms and entrepre-
neurs is publicly available, lowering fraud risk.
Forecasts provide an opportunity for signaling that allows entrepreneurs to differentiate
themselves from others. Anglin et al. (2018) show that the use of language with positive
psychological capital in crowdfunding campaigns on Kickstarter is positively related to the
amount of funds raised. If forecasts depicting a more promising future signal a more posi-
tive, hopeful, or resilient entrepreneur, projects with such forecasts might be able to attract
more funds or investors.
Given the countervailing arguments about whether investors will respond to forecasts,
we make a nondirectional prediction in H1:
Hypothesis 1 (H1): Forecasts are associated with funding outcomes.
If investors incorporate forecasts in their investment decisions, whether they can do so

in a sophisticated manner is less clear. Mollick and Nanda (2016) find that investors and
grant reviewers for the National Endowment of the Arts show congruency in rating theater
projects launched on Kickstarter, supporting crowd wisdom rather than crowd madness.
Jame et al. (2016) find that crowdsourced earnings forecasts on the website Estimize are
more informative than analyst forecasts. However, crowds mostly consisting of retail inves-
tors may not show wisdom with respect to accounting information, which is more techni-
cally difficult to assess than other types of information, because stock market anomalies
have been attributed to retail investors’ misunderstanding of accounting information
(Battalio & Mendenhall, 2005). Consistent with this, Lee et al. (2016) find that using co-
search patterns on Yahoo to identify peer firms significantly underperforms other methods
(e.g., co-search patterns on Electronic Data Gathering, Analysis, and Retrieval system),
because retail investors tend to use Yahoo. Lee et al. (2016) conclude that crowds only pro-
vide wisdom when they consist of more sophisticated investors.
The majority of investors on platforms such as Crowdcube have no prior experience of
investing in an early-stage venture (Nesta, 2014). The legal community expresses skepti-
cism about crowdfunding investors’ ability to evaluate entrepreneurs’ disclosure, with
Bradford (2012) stating ‘‘at least some of the people investing in crowdfunding offerings
will not have the basic financial knowledge required to understand the risks’’ and
Wroldsen (2012) noting ‘‘(disclosure’s) effectiveness in helping investors, especially
Jo and Yang 727
unsophisticated ones, judge the quality of securities offerings is questionable.’’ Without the
experience and skill required, it is unclear whether crowds can demonstrate wisdom regard-
ing accounting information.
We answer the ‘‘crowd wisdom in accounting’’ question by examining whether inves-
tors can detect overly optimistic forecasts. If investors are able to identify unrealistically
optimistic forecasts, projects that have more optimistic forecasts will attract a lower
amount of funding or a smaller number of investors.6 This leads to our nondirectional pre-
diction in H2:
Hypothesis 2 (H2): Ex post optimistic bias in forecasts among funded projects is

associated with the amount of funds or the number of investors.
Finally, we explore the possibility that forecasts, even when they may be optimistically
biased, can be used by entrepreneurs to signal their ability (Trueman, 1986). Attribution
theory in psychology suggests that internal attributions are likely when bold moves are
made (Kelley, 1967), so investors are more likely to attribute the boldness of forecasts to
entrepreneurs’ superior skill. Among public firms, Chief Executive Officer (CEO) ability is
associated with both quantity of management forecasts and market responsiveness to such
forecasts (Baik et al., 2011), supporting the idea that forecasts reveal managers’ quality. If
an entrepreneur uses bold forecasts to signal her ability (or alternatively, a project’s poten-
tial), a project that forecasts higher sales (or faster sales growth, higher profit, higher capi-
tal expenditure, etc.) should be less likely to fail than other projects. To the extent that not
all forecasts are meaningless, we expect that on average forecasts are indicative of a proj-
ect’s survival. This leads to our H3:
Hypothesis 3 (H3): Forecasts are associated with the likelihood of a project’s

survival.
H1 and H3 in conjunction help address the question of crowd wisdom in

accounting—that is, the relation between the forecast signals that investors react to ex ante
and what forecast signals predict ex post. Congruency between forecast signals that inves-
tors react to and forecast signals that predict a project’s survival would attest to crowd
wisdom in accounting. Incongruence, however, is more difficult to interpret. A forecast
signal that is related to funding outcomes but not to survival, or vice versa, does not neces-
sarily refute crowd wisdom in accounting because any insignificant relation can be caused
by low power of the test.
Research Design
Forecasts and Funding Outcomes
Measures of funding outcomes. We measure funding outcomes using three variables: (a)
FundstoTarget is the amount of funds a project attracts as of its exit from Crowdcube
divided by the funding target, regardless of whether the project successfully attained its
funding goal; (b) LnInvestors represents the logarithm of the number of investors willing to
invest in a project as of its exit from Crowdcube; and (c) Funded is the indicator variable
for successfully funded projects.7
Forecasted variables. We collect major line items from the forecasted income statements,
balance sheets, and cash flow statements and use both the level and the ratio of financial
statement items to examine the operating, investing, and financing activities in a project’s
forecast.8
Sales and Earn are forecasted sales and earnings, and ProfitMargin is the ratio of Earn
to Sales. SalesGrowth is forecasted sales growth, calculated as Sales minus lagged Sales,
divided by lagged Sales. CapEx is forecasted capital expenditure. PosDebtFin is an indica-
tor for positive forecasted debt financing and NegDebtFin is an indicator for negative fore-
casted debt financing (i.e., paying back debt). We collect all of these variables for 3 years
because most projects provide forecasts for the next 3 years. The variable names end with
t, which represents 1, 2, or 3 for the individual forecasted year.
Dividends is an indicator for whether a project forecasts paying dividends in any year.
EquityFin is an indicator for whether a project forecasts subsequent equity financing in any
year. We do not code Dividends and EquityFin for each year because the forecasted occur-
rence of dividend payments or equity issuances is too low.
If investors react to forecasts, we expect them to prefer higher Sales, Earn,
ProfitMargin, and SalesGrowth. Investors should also favor more future equity and debt
financing so that firms have more resources to invest, so PosDebtFin, EquityFin, and
CapEx should be positively associated with funding outcomes. NegDebtFin’s effect is more
difficult to predict. Investors prefer early-stage ventures to retain their resources, but
paying off debt is not a choice once debt is incurred. Moreover, NegDebtFin can be the
result of prior years’ debt financing. Finally, we expect forecasted dividend payments
(Dividends) to be viewed negatively because dividends may not be a good idea for early-
stage firms that tend to make losses. Moreover, young investors (whom Crowdcube users
are likely to be) prefer low-payout shares (Miller & Modigliani, 1961).
Control variables. We also control for other variables that may affect funding outcomes.
YrsForecasts is the number of years forecasted.9 We expect YrsForecasts to be positively
related to funding outcomes. We create the variable BadForecasts to measure ex ante fore-
cast quality. Some firms either make inadvertent mistakes regarding the intertemporal rela-
tion between two adjacent years of financial statements, or do not have a thorough
understanding of the accounting equation.10 We set BadForecasts to 1 when the discre-
pancy exceeds £1,000 because some firms forecast in thousands and thus avoid recording a
discrepancy simply because of a rounding issue. We expect financially savvy investors to
be able to identify poor-quality forecasts and refrain from investing in the projects. We
include PriorAssets to control for existing firm size.11 LaterRound is an indicator for
pitches that are not initial launches. We expect their chance of securing funds to be higher
in later rounds. Equity ownership retained by entrepreneurs serves as a signal of a project’s
quality (Leland & Pyle, 1977), so we expect the equity on offer, EquityStake, to be nega-
tively associated with funding outcomes. LnTarget is the logarithm of the funding target,
and FirmAge and ManagersAge are a firm’s age and its managers’ average age as of the
launch of a pitch, respectively. We expect investors to prefer younger firms or younger
teams, which may think more creatively. FinExp is an indicator for financial expertise that
equals 1 if at least one member of the management team has an accounting, finance, or
Master of Business Administration degree, Certified Public Accountant or Certified
Financial Analyst certification, or a previous accounting or finance-related employment
experience. We also control for the number of managers on the team with Teamsize
because Dalton et al. (1999) find that in small/entrepreneurial firms, a larger board of
Jo and Yang 729
directors is associated with better performance. TaxRelief is an indicator for whether a proj-
ect has attained advance assurance of Enterprise Investment Scheme and Seed Enterprise
Investment Scheme tax relief status from the British tax authority.12 We include DualClass
to indicate projects which offer two classes of shares with different voting rights. Finally,
to measure the idea’s creativity, we create SimilarIdea using the method from Hoberg and
Phillips (2010).13 Investors might prefer more creative projects, but more unconventional
ideas are riskier. Finally, we include industry and year fixed effects, where industry is
defined as the first digit of the U.K. Standard Industrial Classification (SIC).
We estimate Model 1 to test for a relation between forecasted variables and funding
outcomes:
Outcome = a + b1 ForecastVar + b2 YrsForecasts + b3 BadForecasts + b4 PriorAssets

+ b5 LaterRound + b6 EquityStake + b7 LnTarget + b8 FirmAge
+ b9 ManagersAge + b10 FinExp + b11 TeamSize
+ b12 TaxRelief + b13 DualClass
+ b14 SimilarIdea + IndustryFEs + YearFEs + e:
ð1Þ
The dependent variable Outcome can be FundstoTarget, LnInvestors, or Funded

(described previously). The test variable ForecastVar is one of the forecasted variables for
Year t (i.e., 1, 2, or 3). The model is estimated using Probit when the dependent variable is
Funded, and ordinary least squares (OLS) otherwise. Some forecasted variables have
extreme values at both tails, so we use quintiles for the continuous forecasted variables in
the regressions. Nonratio, nonindicator variables including Sales, Earn, and CapEx are
scaled by Target before being ranked. If investors use ForecastVar to make investment
decisions, b1 will be positive when ForecastVar is Sales, Earn, ProfitMargin,
SalesGrowth, EquityFin, PosDebtFin, and CapEx, and negative when ForecastVar is
Dividends. Lack of a relation between ForecastVar and Outcome might mean that investors
ignore the forecasts, or that Model 1 does not have sufficient power to detect a relation that
actually exists.
Ex Post Optimistic Bias and Funding Outcomes

Unfortunately, the firms that seek funding via Crowdcube are very small, and most sample
firms are only required to file an abbreviated balance sheet but not an income statement or
cash flow statement. We are able to back out realized earnings from two adjacent years of
retained earnings, assuming there is no dividend payout in the later year.14 We can calcu-
late forecast bias for four financial variables: Optimism_Earn (forecasted earnings minus
realized earnings), Optimism_ShareCap (forecasted share capital minus realized share capi-
tal), Optimism_Assets (forecasted assets minus realized assets), and Optimism_Lev (realized
leverage minus forecasted leverage, where Lev is total liabilities divided by total assets).
Higher values indicate a higher degree of ex post optimistic bias.
Because ex post optimistic bias can only be attained conditional on projects becoming
funded in the first place, we use the Heckman (1979) procedure to address the selection
issue.15 The selection model is the Probit model specified in Model 1, with Funded as the
dependent variable. Some forecasted variables are related to Funded in the first stage but
unrelated to FundstoTarget or LnInvestors among funded projects in the second stage, so

we use them as instruments. The second-stage is the OLS model specified in Model 2:
Outcome = a + b1 Optimism + Controls + IMR + IndustryFE + YearFE + e: ð2Þ
The dependent variable is either FundstoTarget or LnInvestors. Optimism is one of the

four ex post optimistic bias variables. All of the Optimism variables are ranked into quin-
tiles to mitigate extreme values at both tails. Optimism_Earn, Optimism_ShareCap, and
Optimism_Assets are scaled by Target first before being ranked. IMR is the inverse Mills
ratio from the selection model. The control variables are the same as in Model 1. A nega-
tive b1 supports crowd wisdom in accounting, whereas a positive b1 indicates that crowds
are fooled by optimistically biased forecasts.
Forecasts and Future Company Status

We collect sample firms’ status from Companies House on March 17, 2019. Because firms
approach Crowdcube (and enter our sample) at different points in time, those that launch
their pitch earlier (e.g., early 2014) are more likely to have failed by 2019. To account for
this difference, we use the Cox proportional hazard model. The survival time is the number
of days between the project’s exit date from Crowdcube and March 17, 2019, and the fail-
ure event is considered to have occurred if a firm’s status is anything other than
‘‘Active.’’16 We conduct this test for funded projects only, because unfunded firms are
likely to be nonoperating. We collapse the data from pitch-level to firm-level by keeping
the latest pitch for each firm. Model 3 is as follows:
PrðNotActive = 1Þ = a + b1 ForecastVar + Controls + IndustryFE + e: ð3Þ
ForecastVar is the same as the forecasted variables tested in Model 1, including Sales,
Earn, ProfitMargin, SalesGrowth, CapEx, Dividends, EquityFin, PosDebtFin, and
NegDebtFin. If crowds demonstrate wisdom, we expect significant coefficients on
ForecastVar from Model 1 to also be significant in Model 3, but with the opposite signs,
that is, signals that investors respond to ex ante can negatively predict a project’s failure ex
post. We do not include year fixed effects, because the hazard model begins when a project
exits from Crowdcube. Detailed variable definitions are in the Appendix.
Sample Selection
Crowdcube is the United Kingdom’s leading equity-based crowdfunding platform that has
been actively operating since 2014 and claims to have controlled 48% of the United
Kingdom’s crowdfunding market by the end of July 2017. Domestic entrepreneurs, with
entities registered with Companies House, promote their projects through a pitch that usu-
ally stays alive from 30 to 60 days. The pitch includes a ‘‘Financial Snapshot’’ for rela-
tively more mature projects, containing forecasted financial statements (i.e., balance sheets,
income statements, and cash flow statements).
We collect pitches posted on Crowdcube from February 2014 through June 2017.17
Because Crowdcube only archives successfully funded projects and removes unfunded
ones, we visited the website at least once a day to copy the ‘‘investment opportunities’’
page (https://www.crowdcube.com/investments), which shows the current funding status of
Jo and Yang 731
all active pitches. We copied the new pitches’ pages and downloaded their attachments.
We also recorded when old pitches disappeared from the ‘‘investment opportunities’’ page,
either because they achieved their funding target and were moved to the ‘‘funded compa-
nies’’ page (https://www.crowdcube.com/companies), or because they failed to raise suffi-
cient funds and were dropped from the platform without receiving any funds.18 Following
this method, we compiled a database of pitches with their entry and exit dates, the final
outcome, the information from the pitch, financial forecasts, and the company registration
number from Companies House.
Using the company registration number provided in the pitches, we gather more firm
information, such as the incorporation date, company status, officers’ dates of birth, and,
most importantly, realized financial statements.
Empirical Results
Descriptive Statistics
Table 1 presents descriptive statistics for test variables.19 Target ranges from £20,000 to
more than £2 million, and the average of EquityStake is 12.7%. Half of the pitches are suc-
cessfully funded according to the mean of Funded. On average, 194 investors pledge funds
to the projects. The median PriorAssets is only £61,187, but PriorAssets is right-skewed
with a mean of £561,299. Firms on average provide 3 years of forecasts, but a quarter of
firms provide forecasts with longer horizons. We identify 13% of pitches with
BadForecasts. An average FirmAge is 4, although firms are not necessarily operating as
the low median of PriorAssets indicates. The mean of TeamSize is five people with an
average ManagersAge of 45, and 29.5% of the teams possess financial expertise. Among
the forecasted financial variables, firms forecast huge losses for the first year (Earn1),
which are sometimes extreme because the median of ProfitMargin1 is 226.6%. However,
firms forecast much higher Earn2 and Earn3, and expect Sales to more than double the
previous years’. Only 7.4% of the pitches predict paying dividends (Dividends) and 22.6%
predict subsequent equity financing (EquityFin). PosDebtFin1 and NegDebtFin1 imply that
a little less than one fifth of the pitches expect to issue debt, and a similar number expect
to repay debt. The median of the three CapEx variables is very modest, but the large mean
suggests that CapEx is skewed.20 NotActive shows that by March 2019, 30.7% of the firms
are no longer actively operating, reflecting the high failure rates for these early-stage ven-
tures. The positive mean and median of Optimism_Earn, Optimism_Assets, and
Optimism_Lev indicate that firms overestimate their earnings and total assets, and underes-
timate leverage. The only thing that firms are on average conservative about is the size of
share capital, because the mean and median of Optimism_ShareCap are both negative.
Optimism in Forecasted Financials

To verify our conjecture that forecasts are optimistically biased and that investors might be
cautious about relying on them, we calculate and present raw forecast errors (realizations
minus forecasts) for all firm-years with both forecasts and ex post realizations in Table 2.21
Other than forecast errors for Earn, ShareCap, Assets, and Lev, we also present forecast
errors for Sales and ProfitMargin for a handful of firms that file income statements with
Companies House. We consider forecasts to be optimistic if forecast errors are negative
(except Lev forecasts, which are optimistic if forecast errors are positive). Forecasted fiscal
Table 1. Descriptive Statistics.
Variable N Minimum Q1 M Median Q3 Maximum

Target 614 20,000 130,000 323,612 200,000 400,000 2,470,780
EquityStake 614 0.39% 7.69% 12.70% 11.11% 16.67% 47.60%
Funded 614 0 0 0.507 1 1 1
Funds 614 0 40,000 311,699 144,950 350,770 3,990,000
FundstoTarget 614 0 0.210 0.873 0.962 1.329 4.457
Investors 614 0 33 194 100 220 3,417
PriorAssets 614 210,000 8,426 561,299 61,187 227,324 132,125,000
YrsForecasts 614 1 3 3 3 4 6
BadForecasts 614 0 0 0.130 0 0 1
LaterRound 614 0 0 0.067 0 0 1
FirmAge 614 0 2 4 3 5 24
ManagersAge 614 24 39 45 45 51 75
FinExp 614 0 0 0.295 0 1 1
TeamSize 614 1 3 5 5 6 19
TaxRelief 614 0 0 0.081 0 0 1
DualClass 614 0 1 0.795 1 1 1
SimilarIdea 614 0.032 0.093 0.113 0.113 0.130 0.189
Sales1 614 0 138,685 1,325,378 408,508 1,149,000 100,149,045
Sales2 600 0 846,741 4,077,060 1,602,022 3,419,536 189,061,971
Sales3 557 0 1,942,018 9,324,792 3,681,000 7,633,950 314,407,834
Earn1 614 29,689,597 2291,094 2204,175 2102,934 3,527 3,789,282
Earn2 600 29,395,871 254,097 471,376 159,370 505,934 46,048,000
Earn3 557 212,405,000 314,541 2,304,988 844,198 1,914,958 132,487,000
ProfitMargin1 586 27,487.230 20.948 222.099 20.266 0.014 9.434
ProfitMargin2 598 29.329 20.044 20.029 0.101 0.239 1.325
ProfitMargin3 556 22.969 0.119 0.263 0.238 0.394 1.000
Assets1 611 143 152,015 1,211,745 336,650 832,241 193,646,265
Assets2 597 0 344,056 2,630,886 693,568 1,784,349 322,951,314
Assets3 554 29,407 886,341 5,789,175 1,749,069 3,998,635 444,974,584
Lev1 611 20.012 0.105 0.531 0.284 0.566 44.497
Lev2 596 20.014 0.097 0.694 0.265 0.502 178.133
Lev3 554 20.015 0.081 0.268 0.199 0.364 2.306
SalesGrowth1 572 20.085 1.363 47.372 2.672 5.284 20,149.440
SalesGrowth2 555 20.427 0.690 2.543 1.166 2.005 391.207
CapEx1 607 214,000 0 266,001 10,000 76,274 80,000,000
CapEx2 593 241,250 0 330,612 8,000 78,263 80,000,000
CapEx3 551 241,250 0 216,454 4,000 75,000 17,128,417
Dividends 605 0 0 0.074 0 0 1
EquityFin 605 0 0 0.226 0 0 1
PosDebtFin1 605 0 0 0.183 0 0 1
NegDebtFin1 605 0 0 0.175 0 0 1
PosDebtFin2 591 0 0 0.044 0 0 1
NegDebtFin2 591 0 0 0.208 0 0 1
PosDebtFin3 549 0 0 0.033 0 0 1
NegDebtFin3 549 0 0 0.206 0 0 1
NotActive 576 0 0 0.307 0 1 1
Optimism_Earn 181 21,306,100 211,822 225,851 102,528 267,474 6,409,894
Optimism_ShareCap 181 22,155,065 2233,932 247,716 256,496 25,118 4,839,424
Optimism_Assets 181 24,757,150 2125,245 217,810 65,763 310,296 8,612,719
Optimism_Lev 181 211.431 20.095 717.884 0.097 0.411 129,872.670
Note. Table 1 presents the descriptive statistics of variables used in the following tests. The variables are at the
pitch-level, except NotActive that is at the firm-level. The number of observations for forecasts varies according to
availability. Raw values from the pitches are used.
Table 2. Forecast Errors of Funded Firms.
Panel A: Forecasted and Realized Fiscal Years With Overlap of More Than 6 Months.
Percentage of
Forecast optimistic
errors Condition N Minimum Q1 M Median Q3 Maximum forecasts
Sales 35 272,913,035 24,613,950 25,547,031** 21,810,491*** 2191,807 7,609,716 89***
Earn 324 220,856,403 2543,631 2606,739*** 2169,815*** 213,745 3,570,311 77***
Earn Exclude forecasts where 313 220,856,403 2542,655 2608,011*** 2164,649*** 29,704 3,570,311 77***
firms expect to pay
dividends
Earn Only keep realizations 304 220,856,403 2510,676 2618,435*** 2168,810*** 213,745 3,570,311 78***
where retained earnings
are negative
ProfitMargin 29 28,843% 281% 2733%** 242%*** 210% 16% 93***
ShareCap 323 24,839,424 215,348 441,529** 66,110*** 273,479 59,522,378 30***
Assets 323 254,126,265 2567,931 2726,043*** 2139,331*** 92,052 5,508,523 66***
Lev 323 21,143% 28% 40,278% 14%*** 49% 12,987,267% 67***
Panel B: Forecasted and Realized Fiscal Years Are Identical.

Percentage of
Forecast optimistic
Sales 27 272,913,035 24,613,950 26,875,189** 21,940,356*** 21,002,203 4,161,500 89***
Earn 211 220,856,403 2507,064 2656,318*** 2171,845*** 29,054 1,306,100 76***
Earn Exclude forecasts 203 220,856,403 2514,287 2666,467*** 2171,845*** 22,967 1,306,100 75***
where firms expect
to pay dividends
(continued)
733
Table 2. (continued)
734
Panel B: Forecasted and Realized Fiscal Years Are Identical.
Percentage of
Forecast optimistic
Earn Only keep 197 220,856,403 2507,064 2678,782*** 2172,239*** 29,054 1,306,100 76***
realizations where
retained earnings
are negative
ProfitMargin 23 28,843% 2190% 2898%* 261%*** 210% 16% 91***
ShareCap 211 24,839,424 225,118 503,962* 66,110*** 280,576 59,522,378 31***
Assets 210 254,126,265 2559,989 2667,956** 2111,226*** 134,198 5,508,523 60***
Lev 210 2217% 210% 60%** 8%*** 39% 4,635% 62***
Note. Table 2 Panel A presents the statistics of forecast errors defined as realized financials minus forecasted financials. We require the realized and forecasted accounting
periods to have more than 6 months of overlap and the realized fiscal year end to be later than the forecasted fiscal year end. Earnings are backed out by differencing two
adjacent years’ retained earnings for small firms that are exempted from filing income statements. Sales and Earnings are collected from income statements for a handful of firms
that do file realized income statements. Panel B requires the forecasted fiscal year end and the realized fiscal year end to be identical. The last column calculates the ratio of the
number of optimistic forecasts (i.e., positive forecast errors for Lev and negative forecast errors for the other financial variables) to the number of all forecasts. We test
whether the mean and median values of forecast errors are significantly different from 0 and whether the ratios in the last column are significantly different from 50%.
***, **, and * two-tailed statistical significance at the 1%, 5%, and 10% levels, respectively.
Jo and Yang 735
periods sometimes do not match realized fiscal periods precisely. In Panel A, we include
all of the available firm-years providing the forecasted year and the reported fiscal year
have more than 6 months in common and the realized fiscal year end is after the forecasted
year end. The mean (median) value of Sales’ forecast errors suggests that a typical firm
realizes £5.5 (£1.8) million less in sales than expected and 89% of Sales forecasts are opti-
mistic. Realized Earn also falls short of expectations by almost £606,000 (£170,000) using
the mean (median) forecast errors, and 77% of Earn forecasts are optimistic. Most firms
are exempted from filing income statements so we rely on two consecutive years’ retained
earnings to back out earnings. It is possible that we introduce measurement error by assum-
ing firms do not pay dividends. We create two scenarios in which dividends are less likely.
First, we exclude forecasts and corresponding realizations where firms expect to pay divi-
dends. Second, we only keep forecasted earnings and realized earnings if realized retained
earnings are negative. The pattern of forecast errors for Earn still suggests overwhelmingly
optimistic earnings forecasts under these two conditions. Although forecast errors for
ProfitMargin are based on only 29 observations, the median suggests that a typical firm
misses the expected profit margin ratio by 242%, and 93% of forecasts are optimistic.
Forecast errors for ShareCap have positive mean and median values, probably due to over-
funding on Crowdcube or additional equity financing from outside the platform. Mean
(median) realized Assets are £726,000 (£139,000) lower than expected. The median of fore-
cast errors for Lev indicates that realized leverage is 14% higher than expected leverage,
and 67% of Lev forecasts are optimistic. Other than the mean value of Lev’s forecast
errors, all mean and median values are statistically different from 0. Furthermore, every
value in the last column is statistically different from 50%.
In Panel B, we restrict the forecasted and realized periods to cover the identical 12
months. Despite losing more than 30% of the observations, we find very similar patterns to
those in Panel A. That is, realized sales, earnings, profit margin, total assets, and leverage
are significantly more optimistic than expectations. Only realized share capital is higher
than expected.
To further assess optimism in forecasts, we examine firms that seek multiple rounds of
funds on Crowdcube and provide forecasts more than once for the same years in the future.
If the initial forecasts are too optimistic, we expect to see entrepreneurs systematically
walk down their forecasts in later rounds. Table 3 reports 52 pairs of firm-year forecasts,
one set from the first pitch and the other set from the later pitch, and calculates the changes
in forecasts (later round minus earlier round). The ratio of walked-down forecasts to the
total number of forecasts is presented in the last column. Table 3 demonstrates a consistent
picture, in which forecasts made in the later round are less optimistic than those in the ear-
lier round. Tables 2 and 3 together confirm that largely undeliverable forecasts are provided
to crowdfunding investors.
Forecast Signals and Funding Outcomes

Table 4 presents results from tests for a relation between forecasts for the first year and
funding outcomes. We group the forecasted financial variables into operating, investing,
and financing activities and report the results in Panels A, B, and C, accordingly.22 In
Panel A, the coefficient on Sales1 is positive in all three columns, suggesting that investors
prefer to invest in projects that forecast larger sales and they provide these projects with
more funds.23 In contrast, none of the coefficients on Earn1 are significant.24 Only in
column (8) do we find a positive coefficient of ProfitMargin1 (significant at the 10%
Table 3. Forecasts Provided in Two Rounds by the Same Firms.

M Median Percentage of
walked-down
Earlier Later Earlier Later forecasts in the
Variable N round round Later 2 Earlier round round Later 2 Earlier later round
Sales 52 13,359,409 10,041,991 23,317,418** 4,251,084 1,695,308 21,739,187*** 83***
Earn 52 2,267,771 1,252,707 21,015,064** 632,385 21,937 2471,837*** 81***
ProfitMargin 52 21% 2115% 2114% 15% 2% 29%*** 73***
ShareCap 52 2,881,492 5,397,321 2,515,830*** 1,405,010 1,745,023 705,815*** 23***
Assets 52 8,176,612 7,971,312 2205,300 1,912,835 1,579,483 293,101 58
Lev 52 16% 27% 11%* 18% 18% 1% 54
Note. Table 3 presents forecasted variables provided by the same firm in pitches launched at different points in
time. We have 52 pairs of forecasts for the same future firm-years, one set of forecasts provided in an earlier
round than the other set. We calculate the changes in forecasts (forecasts in the later round minus forecasts in the
earlier round) in the ‘‘Later 2 Earlier’’ column and test whether the mean and median values are statistically
different from 0. In the last column, we calculate the percentage of walked-down forecasts in the later round (i.e.,
forecasted Lev adjusted upward or the other forecasted variables adjusted downward) out of 52 and test whether
the percentage is statistically different from 50%.
***, **, and * signify two-tailed statistical significance at the 1%, 5%, and 10% levels, respectively.
level). The fact that investors react strongly to forecasted sales but not to forecasted earn-
ings might reflect the limited relevance of losses documented in prior research (e.g., Hayn,
1995; Leung & Veenman, 2018).25 Finally, we find no evidence that SalesGrowth1 is
related to funding outcomes.
YrsForecasts is statistically positive in 10 of 12 columns, suggesting that investors
prefer projects in which entrepreneurs provide forecasts over a longer horizon. This is con-
sistent with findings for public firms, where more voluntary disclosures help reduce the
cost of capital (Botosan, 1997). However, we find no evidence that investors avoid projects
with ex ante problematic forecasts, as indicated by the insignificant coefficients on
BadForecasts in all columns. To some degree, BadForecasts also measures crowd wisdom
in accounting and we do not find support here.
Among the control variables, we find evidence that firms that are already relatively siz-
able before they approach Crowdcube are more likely to receive funding, and later pitches
tend to attract more investors. Findings on EquityStake suggest that equity ownership
retained by entrepreneurs serves as a signal for a project’s quality. Younger firms with
younger, larger management teams tend to secure more funds and more investors. Finally,
TaxRelief is positively related to LnInvestors.
In Panel B, we examine the relation between forecasted capital expenditures and funding
outcomes. The coefficients on CapEx1 are insignificant. Consistent with Panel A,
YrsForecasts is mostly positively related to funding outcomes, but BadForecasts is not.
In Panel C, we examine the relation between the forecasted variables related to financ-
ing activities and funding outcomes. Results indicate investors’ preference for more equity
financing (EquityFin) and less dividend payouts (Dividends). In columns (7) through (9),
we document corroborating evidence for investors’ preference for additional financing
through debt (PosDebtFin1).
Overall, Table 4 indicates that investors do react to signals in financial forecasts, but not
to all of them. In particular, we find that investors favor projects with higher sales and sub-
sequent equity and debt financing, and dislike those that predict dividend payments. We
also find some evidence that projects providing more years of forecasts are more likely to
Table 4. Forecast Signals and Funding Outcomes.
Panel A: Forecasted Financial Variables for Operating Activities.
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)
Fundsto Fundsto Fundsto Fundsto
Variable Target LnInvestors Funded Target LnInvestors Funded Target LnInvestors Funded Target LnInvestors Funded
Sales1 0.057*** 0.105*** 0.078*

[2.715] [3.327] [1.808]
Earn1 0.003 0.042 0.039
[0.157] [1.389] [0.978]
Profit 0.019 0.056* 0.065
Margin1 [0.910] [1.833] [1.544]
Sales 20.006 20.051 20.032
Growth1 [20.266] [21.427] [20.718]
YrsForecasts 0.071* 0.120* 0.149* 0.059 0.106* 0.139* 0.066 0.118* 0.151* 0.077* 0.129** 0.171**
[1.699] [1.959] [1.944] [1.443] [1.736] [1.858] [1.499] [1.823] [1.886] [1.760] [1.975] [2.086]
Bad 20.044 0.046 20.013 20.036 0.064 0.003 20.030 0.057 0.025 20.019 0.049 0.014
Forecasts [20.537] [0.378] [20.083] [20.440] [0.515] [0.019] [20.353] [0.452] [0.158] [20.216] [0.369] [0.088]
PriorAssets 0.048* 0.033 0.076 0.064** 0.057 0.092* 0.067*** 0.056 0.091* 0.069*** 0.054 0.100*
[1.866] [0.779] [1.458] [2.514] [1.381] [1.795] [2.598] [1.346] [1.719] [2.587] [1.228] [1.837]
LaterRound 0.084 0.325* 0.335 0.096 0.352* 0.347 0.090 0.335* 0.331 0.094 0.321* 0.325
[0.504] [1.755] [1.320] [0.569] [1.906] [1.376] [0.519] [1.784] [1.295] [0.546] [1.728] [1.284]
EquityStake 21.213*** 21.857*** 20.773 21.372*** 22.229*** 21.063 21.290*** 22.052*** 20.782 21.350*** 22.243*** 20.930
[22.628] [22.642] [20.845] [22.876] [23.157] [21.160] [22.695] [22.933] [20.849] [22.794] [23.208] [20.990]
LnTarget 0.005 0.476*** 20.056 20.017 0.438*** 20.085 20.011 0.464*** 20.072 20.019 0.441*** 20.099
[0.118] [7.239] [20.655] [20.420] [6.657] [21.012] [20.253] [6.704] [20.803] [20.449] [6.397] [21.101]
FirmAge 20.020** 20.020 20.071*** 20.020** 20.020 20.070*** 20.021** 20.024 20.068*** 20.021** 20.024 20.065***
[22.299] [21.409] [23.190] [22.254] [21.381] [23.211] [22.233] [21.513] [22.994] [22.198] [21.520] [22.808]
ManagersAge 20.007** 20.012** 20.010 20.006** 20.011** 20.009 20.008*** 20.013*** 20.012* 20.008** 20.014*** 20.013**
[22.209] [22.440] [21.606] [22.147] [22.279] [21.504] [22.669] [22.713] [21.903] [22.557] [22.760] [21.978]
FinExp 0.103 0.125 0.177 0.125 0.152 0.192 0.111 0.132 0.140 0.123 0.159* 0.177
[1.371] [1.311] [1.405] [1.636] [1.586] [1.520] [1.453] [1.385] [1.084] [1.593] [1.660] [1.370]
TeamSize 0.038*** 0.058*** 0.097*** 0.036*** 0.057*** 0.098*** 0.041*** 0.063*** 0.108*** 0.040*** 0.068*** 0.108***
[2.955] [3.169] [3.972] [2.760] [3.089] [3.965] [2.957] [3.276] [4.064] [2.835] [3.367] [3.930]
TaxRelief 0.075 0.359** 0.145 0.060 0.334** 0.132 0.038 0.274* 0.070 0.026 0.255* 0.042
[0.694] [2.330] [0.718] [0.555] [2.144] [0.654] [0.349] [1.808] [0.340] [0.240] [1.677] [0.202]
DualClass 0.002 20.105 20.108 20.009 20.125 20.122 0.009 20.103 20.077 0.020 20.087 20.058
[0.023] [20.975] [20.786] [20.115] [21.135] [20.885] [0.116] [20.908] [20.540] [0.239] [20.756] [20.406]
SimilarIdea 0.835 2.879 3.299 1.002 3.263* 3.613 0.427 2.286 2.572 0.407 2.287 2.502
[0.717] [1.542] [1.380] [0.860] [1.751] [1.520] [0.360] [1.222] [1.059] [0.344] [1.234] [1.030]
Industry FEs Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Year FEs Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
No. of observations 614 614 614 614 614 614 586 586 586 572 572 572
2 2
737
Adjusted R /Pseudo R 12.7% 41.6% 11.1% 11.8% 40.7% 10.9% 12.1% 41.6% 11.1% 12.4% 41.6% 11.4%
(continued)
738
Panel B: Forecasted Financial Variables for Investing Activities.
(1) (2) (3)

Variable FundstoTarget LnInvestors Funded
CapEx1 0.027 0.039 0.034

[1.467] [1.385] [0.946]
YrsForecasts 0.070* 0.098 0.135*
[1.709] [1.620] [1.788]
BadForecasts 20.002 0.053 0.012
[20.027] [0.416] [0.072]
PriorAssets 0.058** 0.064 0.096*
[2.254] [1.531] [1.863]
LaterRound 0.127 0.347* 0.344
[0.745] [1.854] [1.367]
EquityStake 21.373*** 22.017*** 20.921
[22.895] [22.899] [21.010]
LnTarget 20.016 0.419*** 20.102
[20.389] [6.380] [21.204]
FirmAge 20.021** 20.017 20.067***
[22.372] [21.174] [23.102]
ManagersAge 20.006** 20.012** 20.010*
[22.136] [22.488] [21.652]
FinExp 0.111 0.130 0.162
[1.482] [1.352] [1.278]
TeamSize 0.036** 0.051*** 0.094***
[2.566] [2.626] [3.725]
TaxRelief 0.078 0.367** 0.160
[0.708] [2.304] [0.774]
DualClass 20.022 20.105 20.111
[20.268] [20.948] [20.796]
SimilarIdea 1.167 3.069 3.610
[0.998] [1.645] [1.501]
Industry FEs Yes Yes Yes
Year FEs Yes Yes Yes
No. of observations 607 607 607
Adjusted R2/Pseudo R2 12.3% 39.8% 10.7%
(continued)
Panel C: Forecasted Financial Variables for Financing Activities.
(1) (2) (3) (4) (5) (6) (7) (8) (9)

Variable FundstoTarget LnInvestors Funded FundstoTarget LnInvestors Funded FundstoTarget LnInvestors Funded
Dividends 20.283*** 20.340* 20.428*

[22.683] [21.844] [21.927]
EquityFin 0.224*** 0.342*** 0.348**
[3.104] [3.443] [2.545]
PosDebtFin1 0.163** 0.253** 0.366**
[1.994] [2.077] [2.401]
NegDebtFin1 0.008 0.044 0.144
[0.114] [0.401] [0.969]
YrsForecasts 0.067 0.092 0.134* 0.033 0.040 0.079 0.068* 0.095 0.138*
[1.620] [1.530] [1.766] [0.765] [0.651] [1.002] [1.661] [1.580] [1.846]
BadForecasts 20.011 0.034 0.010 20.027 0.009 20.013 20.007 0.037 0.013
[20.125] [0.270] [0.064] [20.327] [0.071] [20.080] [20.084] [0.287] [0.084]
PriorAssets 0.065** 0.076* 0.103** 0.064** 0.075* 0.101** 0.062** 0.071* 0.094*
[2.581] [1.849] [1.993] [2.554] [1.839] [1.969] [2.370] [1.677] [1.764]
LaterRound 0.100 0.317* 0.299 0.146 0.379** 0.378 0.104 0.316 0.302
[0.581] [1.674] [1.185] [0.861] [2.056] [1.499] [0.580] [1.631] [1.172]
EquityStake 21.453*** 22.087*** 21.080 21.315*** 21.887*** 20.844 21.426*** 22.065*** 21.070
[23.062] [22.969] [21.183] [22.752] [22.685] 20.920] [23.030] [22.989] [21.184]
LnTarget 20.011 0.424*** 20.089 20.010 0.426*** 20.090 20.018 0.415*** 20.097
[20.263] [6.404] [21.044] [20.232] [6.437] [21.048] [20.418] [6.123] [21.109]
FirmAge 20.022** 20.019 20.069*** 20.018** 20.014 20.062*** 20.020** 20.017 20.069***
[22.516] [21.302] [23.169] [22.077] [20.953] [22.938] [22.378] [21.212] [23.173]
ManagersAge 20.006** 20.012** 20.011* 20.006** 20.012** 20.010 20.007** 20.012** 20.011*
[22.128] [22.461] [21.697] [22.101] [22.435] [21.600] [22.200] [22.534] [21.778]
FinExp 0.136* 0.159* 0.204 0.120 0.139 0.177 0.118 0.135 0.172
[1.803] [1.652] [1.591] [1.608] [1.471] [1.406] [1.559] [1.400] [1.350]
TeamSize 0.034** 0.050** 0.091*** 0.032** 0.046** 0.088*** 0.036** 0.051*** 0.092***
[2.405] [2.537] [3.567] [2.358] [2.399] [3.457] [2.556] [2.657] [3.649]
TaxRelief 0.087 0.379** 0.176 0.079 0.370** 0.160 0.077 0.369** 0.173
[0.783] [2.351] [0.839] [0.708] [2.276] [0.765] [0.702] [2.313] [0.835]
DualClass 20.018 20.102 20.108 20.031 20.119 20.128 20.029 20.117 20.131
[20.230] [20.916] [20.776] [20.389] [21.098] [20.914] [20.367] [21.066] [20.937]
SimilarIdea 1.222 3.088 3.703 1.129 2.986 3.528 1.193 3.084* 3.793
[1.047] [1.646] [1.538] [0.962] [1.603] [1.468] [1.011] [1.653] [1.565]
Industry FEs Yes Yes Yes Yes Yes Yes Yes Yes Yes
Year FEs Yes Yes Yes Yes Yes Yes Yes Yes Yes
No. of observations 605 605 605 605 605 605 605 605 605
Adjusted R2/Pseudo R2 13.0% 39.9% 11.1% 13.5% 40.5% 11.3% 12.5% 39.9% 11.3%
Note. Table 4 presents the relation between the funding outcomes and forecasted variables. The regressions are ordinary least squares when the dependent variable is FundstoTarget or LnInvestors and
Probit when the dependent variable is Funded. Panels A, B, and C present the forecasted variables for operating activities, investing activities, and financing activities, respectively. The continuous
forecasted financial variables (scaled by Target for nonratio variables including Sales, Earn, and CapEx) in Panels A and B are ranked into quintiles to alleviate the concern over extreme outliers at both
tails. The forecasted variables in Panel C are indicator variables. t-statistics (or z-statistics) underneath the coefficients are based on standard errors clustered by firm registration number.
739
***, **, and * signify two-tailed statistical significance at the 1%, 5%, and 10% levels, respectively. Variables are bold because they are variables of interest, relative to the other variables bold because
they are variables of interest, relative to the other variables. Variables are bold because they are variables of interest, relative to the other variables bold because they are variables of interest, relative
to the other variables.
Abbreviation: FE, Fixed Effects.
get funded. However, we find no evidence that projects providing problematic forecasts
(i.e., BadForecasts) are avoided by investors.
Ex Post Optimistic Bias in Forecasts and Funding Outcomes

Table 5 reports the second-stage results from tests for a relation between ex post optimistic
bias in forecasts and funding outcomes using the Heckman (1979) procedure.26 In columns
(1) and (2), Optimism_Earn is insignificant so there is no evidence that more optimistic
earnings forecasts affect the amount of funds or the number of investors. This further sug-
gests that investors are unresponsive to forecasted earnings. In columns (3) through (8),
Optimism_ShareCap, Optimism_Assets, and Optimism_Lev are all negatively associated
with FundstoTarget and LnInvestor. These results demonstrate that overly optimistic fore-
casts of share capital, total assets, and leverage, benchmarked against their ex post realiza-
tions, deter investors.27 The caveat here is that variation in FundstoTarget and LnInvestors
is limited to funded projects. In untabulated results from Table 4, ShareCap, Assets, and
Lev are not related to funding outcomes. Along with Table 5, this finding implies that
investors do not use these variables to select a project, and investors are not fooled by over-
estimates of these variables among projects they have selected. Finally, Sales is the signal
investors do positively react to, and it would have been interesting to see whether investors
are taken in by optimistically biased forecasted sales, but we do not have sufficient realiza-
tions to test this.
Forecasts and Future Company Status

Table 6 reports the proportional hazard models that test for a relation between forecasts
and future company status. To assess H1 (Table 4) and H3 (Table 6) together, we list the
predicted signs of test variables next to variable names based on the results from Table 4.
For example, Table 4 shows that investors react positively to Sales, and if crowds demon-
strate wisdom in accounting, Sales should predict a lower likelihood of a firm becoming
inactive in the future. We estimate regressions for funded firms only and present the fore-
casted variables for the first year. Forecasted variables for the second- and third-year yield
similar results. We do not find evidence that a firm’s higher Sales1 predicts a higher
chance of survival, despite the fact that investors favor higher forecasted sales. Neither
Earn1 nor ProfitMargin1 is statistically related to survival but EquityFin is positively
related to NotActive at the 5% level. Given the finding in Table 4 that EquityFin is posi-
tively related to all three funding outcomes, the result in Table 6 implies that investors
incorrectly use EquityFin as a signal. The coefficient of NegDebtFin1 is significantly posi-
tive, possibly because firms that need to pay off pre-Crowdcube debt are more likely to
fail. We do not find any evidence that SalesGrowth1, Dividends, or CapEx1 are related to
survival.
Interestingly, coefficients on BadForecasts are positive in all columns, indicating that
firms that make problematic forecasts are more likely to fail in the future. BadForecasts
appears to reflect lesser management ability, but Table 4 shows that investors do not react
to this signal. Moreover, YrsForecasts, which is significant in Table 4, has no predictive
power for firms’ likelihood of survival. Overall, the lack of congruence between the
inferred signs from Table 4 and the actual signs in Table 6 does not lend support to the
idea of crowd wisdom in accounting. It is possible that forecasts might be associated with
Table 5. Forecast Optimism and Funding Outcomes Among Funded Projects (Second Stage of Heckman Procedure).
(1) (2) (3) (4) (5) (6) (7) (8)

Variable FundstoTarget LnInvestors FundstoTarget LnInvestors FundstoTarget LnInvestors FundstoTarget LnInvestors
Optimism_Earn 0.052 0.005
[1.417] [0.188]
Optimism_ShareCap 20.151*** 20.083***
[24.277] [23.119]
Optimism_Assets 20.087** 20.057**
[22.561] [22.361]
Optimism_Lev 20.073** 20.046*
[22.170] [21.755]
YrsForecasts 20.030 20.002 20.003 0.021 20.040 0.001 20.059 20.012
[20.489] [20.034] [20.051] [0.404] [20.735] [0.013] [21.061] [20.230]
BadForecasts 0.183 0.113 0.175 0.107 0.168 0.101 0.207 0.127
[1.027] [0.952] [1.201] [0.931] [0.935] [0.833] [1.211] [1.097]
Inverse Mills ratio 20.677*** 20.738*** 20.754*** 20.787*** 20.709*** 20.767*** 20.717*** 20.771***
[23.059] [23.265] [23.563] [23.535] [23.400] [23.438] [23.325] [23.441]
Controls Yes Yes Yes Yes Yes Yes Yes Yes
Industry FEs Yes Yes Yes Yes Yes Yes Yes Yes
Year FEs Yes Yes Yes Yes Yes Yes Yes Yes
No. of observations 181 181 181 181 181 181 181 181
Adjusted R2 9.6% 69.9% 22.1% 71.9% 12.5% 70.8% 11.4% 70.6%
Note. Table 5 presents the second-stage ordinary least squares models of funding outcomes among only funded projects, with the Inverse Mills Ratio from the first-stage Probit
model as a regressor. If more than one forecasted year is realized for a given pitch, we use the earliest forecasted year to calculate the forecast optimism measures.
Optimism_Earn, Optimism_ShareCap, and Optimism_Assets are scaled by Target and then ranked into quintiles; Optimism_Lev is directly ranked into quintiles. t-statistics underneath
the coefficients are based on standard errors clustered by firm registration number.
741
Table 6. Forecasts and Firms’ Likelihood of Becoming Inactive in the Future.
742
Variable Inferred from T4 (1) (2) (3) (4) (5) (6) (7) (8)
Sales1 2 0.028
[0.184]
Earn1 Insignificant 20.002
[20.022]
ProfitMargin1 Insignificant 0.012
[0.108]
SalesGrowth1 Insignificant 0.090
[0.658]
CapEx1 Insignificant 0.019
[0.157]
Dividends + 20.948
[20.740]
EquityFin 2 1.106**
[2.542]
PosDebtFin1 2 0.668
[1.356]
NegDebtFin1 Insignificant 1.143***
[2.794]
YrsForecasts 2 0.070 0.064 0.023 0.012 0.076 0.125 20.106 0.194
[0.306] [0.277] [0.093] [0.048] [0.315] [0.572] [20.418] [0.794]
BadForecasts Insignificant 0.927* 0.916* 0.991* 1.022** 1.103** 1.083** 1.059** 1.274**
[1.823] [1.826] [1.931] [2.041] [2.381] [2.280] [2.272] [2.437]
Controls Yes Yes Yes Yes Yes Yes Yes Yes
Industry FEs Yes Yes Yes Yes Yes Yes Yes Yes
No. of observations 278 278 265 254 276 276 276 276
Pseudo R2 7.7% 7.7% 7.7% 7.4% 8.3% 8.6% 9.7% 10.3%
Note. Table 6 presents the Cox proportional hazard models of firms’ future status among funded projects. The tests are conducted at the firm level, and only the last pitch is
kept for firms that launch multiple pitches. The dependent variable is NotActive. The test-forecasted variables are the same as in Table 4, from which the predicted signs are
inferred. The study time is the number of days between a firm’s exit from Crowdcube and March 17, 2019, when the company status was recorded from Companies House.
The failure event is the company status being inactive by March 17, 2019. An inactive company status is anything other than ‘‘Active,’’ and indicates different stages of liquidation
or winding down. z-statistics underneath the coefficients are based on robust standard errors.
Jo and Yang 743
other positive future outcomes not captured by NotActive but any positive outcome must be
conditional on a firm’s survival.
Conclusion
Despite the rapid expansion of equity-based crowdfunding, financial experts and regulators
have expressed concerns about the high risks associated with investing in early-stage ven-
tures (‘‘Critics Raise Concerns,’’ 2015; ‘‘FCA Rebukes Equity,’’ 2015; ‘‘Fears That
Crowdfunding,’’ 2016). Risks include the lack of experience of both entrepreneurs and the
crowd, the tendency of entrepreneurs to be overly optimistic, and the presence of high
information asymmetry. This article exploits verifiable forecasted financial statements pro-
vided by entrepreneurs for equity-based crowdfunding. By comparing forecasts with their
realizations in the annual reports filed with the government, we document systematically
optimistic forecast bias. Although they are insensitive to many forecast signals, investors
do respond to higher forecasted sales and forecasted financing choices. We find some evi-
dence that investors can filter out optimistic bias in forecasts, but we do not find evidence
that investors avoid projects with forecasted financial statements containing apparent
accounting mistakes. In addition, the forecast signals that investors react to do not posi-
tively predict a project’s survival. In summary, we find mixed support for crowd wisdom
in accounting. This article echoes the FCA’s concern that entrepreneurs may provide opti-
mistically biased information in crowdfunding, which can mislead investors. The findings
should be of interest to regulators of crowdfunding markets that are not located in countries
such as the United States where stringent disclosure requirements on issuers of equity-
based crowdfunding are imposed.
Appendix
Variable Definitions.
Variable Definition
Target = funding target listed in a Crowdcube pitch; the unit is British pounds.
EquityStake = equity percentage a project proposes to sell in exchange for funds.
Funded = indicator variable that equals 1 for funded projects and 0 for unfunded
projects.
Funds = amount of funds a project receives as of its exit from Crowdcube.
FundstoTarget = Funds divided by Target.
Investors = number of investors who pledge funds to a project as of its exit from
Crowdcube.
PriorAssets = total assets of a firm before it launches its pitch on Crowdcube. PriorAssets
is collected from ‘‘Financial Snapshot’’ if the firm discloses total assets in
prior periods, or from filings on Companies House filed before the pitch.
PriorAssets is set to 0 if the firm does not disclose total assets in prior
periods and no filing is found on Companies House. Quintiles of
PriorAssets are used in the regressions.
YrsForecasts = number of future years for which a project provides forecasts.
BadForecasts = indicator variable that equals 1 for problematic forecasts. Problematic
forecasts are identified when the change in share capital between two
adjacent years differs from equity investment in the later year by £1,000.
(continued)
Appendix (continued)
Variable Definition
LaterRound = indicator variable that equals 1 if a pitch is not a firm’s first-time pitch on
Crowdcube.
FirmAge = a firm’s age as of its pitch on Crowdcube, calculated using the
incorporation date on Companies House.
ManagersAge = average age of managers of a project, calculated using the date of birth on
Companies House.
FinExp = indicator variable that equals 1 if there is at least one financial expert on
the management team. A financial expert is defined as one with an
accounting, finance, or Master of Business Administration degree,
Certified Public Accountant or Certified Financial Analyst certificate, or
previous accounting or finance job.
TeamSize = number of people on the management team disclosed in a pitch.
TaxRelief = indicator variable that equals 1 if a project secures advanced assurance of
both Enterprise Investment Scheme and Seed Enterprise Investment
Scheme tax relief status.
DualClass = indicator variable that equals 1 if a project provides two classes of shares
with different voting rights.
SimilarIdea = similarity of an idea to the other ideas. The measure is calculated in the
same way as in Hoberg and Phillips (2010). We extract texts from ‘‘The
Idea’’ section in pitches and construct N-dimensional vectors to
represent words used to describe each idea. N is the number of
noncommon unique words used in a pitch. The cosine similarity between
two vectors measures the similarity in the ideas. SimilarIdea is the
average of cosine similarities between one idea and all the other ideas in
the sample.
Sales = forecasted sales collected from ‘‘Financial Snapshot.’’ Sales1 to Sales3
represent forecasted sales from the first through third forecasted year.
Similar annotation applies to other forecasted financial variables.
Quintiles of continuous forecasted financial variables (scaled by Target for
nonratio variables including Sales, Earn, and CapEx) are used in the
regressions.
Earn = forecasted earnings for Year 1, 2, or 3 collected from ‘‘Financial Snapshot.’’
ProfitMargin = forecasted Earn divided by forecasted Sales.
Assets = forecasted total assets for Year 1, 2, or 3.
Equity = forecasted shareholders’ equity for Year 1, 2, or 3.
Lev = forecasted leverage calculated as Assets minus Equity, divided by Assets.
SalesGrowth = Sales in forecasted Year t minus Sales in forecasted Year t 2 1, divided by
the latter.
Dividends = indicator variable that equals 1 if a project forecasts distribution of
dividends in any of the forecasted years.
EquityFin = indicator variable that equals 1 if a project forecasts additional equity
issuance (other than the initial Crowdcube equity issuance) in any of the
forecasted years.
PosDebtFin = indicator variable that equals 1 if a project forecasts positive long-term
debt financing for Year 1, 2, or 3.
NegDebtFin = indicator variable that equals 1 if a project forecasts negative long-term
debt financing for Year 1, 2, or 3.
CapEx = forecasted capital expenditure collected from ‘‘Financial Snapshot.’’
NotActive =
(continued)
Jo and Yang 745
Appendix (continued)
Variable Definition
indicator variable that equals 1 if a firm’s status on Companies House is
not ‘‘Active’’ as of March 17, 2019.
Optimism_Earn = forecasted earnings minus realized earnings for funded firms. Quintiles of
all the optimism measures (scaled by Target for nonratio variables
including Optimism_Earn, Optimism_ShareCap, and Optimism_Assets) are
used in the regressions.
Optimism_ShareCap = forecasted share capital minus realized share capital for funded firms.
Optimism_Assets = forecasted total assets minus realized assets for funded firms.
Optimism_Lev = realized leverage (total liabilities divided by total assets) minus forecasted
leverage for funded firms.
Author’ Note
All errors are ours.
Acknowledgment
The authors are grateful for the helpful comments from C.S. Agnes Cheng, Bin Ke, Linda Myers,
Jeffrey Ng, James Ohlson, two anonymous reviewers, and the seminar participants at the 2018
Journal of Accounting, Auditing and Finance Conference and the Hong Kong Polytechnic University.
Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/
or publication of this article.
Funding
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or
publication of this article: The authors acknowledge the financial support from the Hong Kong
Research Grants Council Early Career Scheme #25505516 and the Hong Kong Polytechnic
University.
ORCID iD
Shuo Yang https://orcid.org/0000-0003-4993-9935
Notes
1. The Financial Conduct Authority in the United Kingdom introduced crowdfunding consumer
protection rules in 2014. These rules restrict firms seeking funds on crowdfunding platforms to
making direct offer promotions to retail consumers who take regulated advice, qualify as high
net worth or sophisticated investors, or confirm that they will invest less than 10% of their net
assets in crowdfunding.
2. For example, Landier and Thesmar (2009) compare answers to the survey question ‘‘what is
your view of the future?’’ with median realized sales and employment growth to measure entre-
preneurs’ optimism.
3. In the United Kingdom, security issuers can be exempted from filing a prospectus if the invest-
ment involves less than e5 million and fewer than 150 nonqualified investors and any number of
qualified investors, or if the investment does not exceed e100,000 (Gabison, 2014).
Crowdfunding platforms in the United Kingdom usually take advantage of these exemptions. In
the United States, equity-based crowdfunding is regulated via Regulation Crowdfunding, put in
place in 2016. Under Regulation Crowdfunding, issuers are required to file a de facto prospectus,
including detailed financial statements certified by the executives if the amount sought is below
US$500K or by an external auditor if it is above US$500K. More importantly, under the
Securities Exchange Act of 1934, an issuer becomes a public reporting company once it has
more than 500 investors, which means that the issuer must file annual reports and other ongoing
disclosures (Mirabile, 2016).
4. Armstrong et al. (2007) study forecasts made by venture-capital-backed private firms and find
that management underestimates sales and expenses in short-horizon forecasts and overestimates
sales and expenses in long-horizon forecasts. The authors explain that management underesti-
mates expenses in the short term to present investors with relatively moderate ‘‘cash burn,’’ and
overestimates sales in the long term to show growth opportunities; management overestimates or
underestimates sales and expenses together to ‘‘exhibit reasonable internal consistency.’’ Here,
the benchmark against which forecasts are assessed is not actual but what would be expected
given the historical performance of firms as a whole. Interactions between entrepreneurs and
venture capitalists resemble a repeated game due to the multiple rounds of financing, so more
strategic forecasting by entrepreneurs is possible.
5. In a letter to the Securities and Exchange Commission (SEC) commenting on crowdfunding reg-
ulation (before the agency’s adoption of Regulation Crowdfunding), Secretary of the
Commonwealth for Massachusetts argued that ‘‘(u)nscrupulous penny stock promoters have used
misrepresentations to market obscure and low-value stocks to individuals, often through pump
and dump schemes. These kinds of fraud operators have not gone away’’ (Galvin, 2012).
6. One caveat is that we can only examine forecasting bias among successfully funded projects
because forecasts are made under the assumption that projects will receive funds.
7. FundstoTarget is less than 1 for unfunded projects and equal to or higher than 1 for funded (or
overfunded) projects.
8. We do not collect cash flows from operating, investing, and financing activities because not all
projects break cash flows down into these three categories.
9. Although the norm is to provide 3 years of forecasts, some provide fewer, whereas others pro-
vide more.
10. For example, the paid-in-capital accounts of some projects change from Year t 2 1 to Year t by
an amount that differs from equity financing in Year t, and we do not observe any forecasted
share buybacks. In one extreme case, paid-in-capital remains the same across all the forecasted
years despite the forecasted equity financing in some years.
11. We collect total assets from projects that disclose their historical financial statements in a
‘‘Financial Snapshot’’; for projects not disclosing historical financial statements, we look up pre-
Crowdcube filings on Companies House, and set PriorAssets to zero for projects without pre-
Crowdcube filings.
12. Enterprise Investment Scheme and Seed Enterprise Investment Scheme are schemes to alleviate
taxes for investors who invest in small companies, in an effort to cultivate entrepreneurship in
the United Kingdom.
13. Specifically, we extract section ‘‘The Idea’’ from the pitch and measure a project’s linguistic
similarity to other projects. The more similar this section of a project is to other projects (a
higher SimilarIdea), the less creative the idea is.
14. This assumption is reasonable, given the early stage of these ventures and their need for
resources.
15. The inferences hold without the Heckman (1979) procedure.
16. Nonactive statuses include ‘‘Dissolved,’’ ‘‘Liquidation,’’ ‘‘In Administration,’’ ‘‘Voluntary
Arrangement,’’ and ‘‘Insolvency Proceedings’’ in the order of descending frequency.
Jo and Yang 747
17. Crowdcube appears to have made major changes regarding disclosure requirements in July 2017,
and forecasts have become largely unavailable afterward.
18. In the former case, we consulted ‘‘funded companies’’ to copy the final funding outcome, includ-
ing the amount of money received and the number of investors. In the latter case, we used infor-
mation from the previous day as the final funding outcome of the failed pitches.
19. Other than NotActive, which is at the firm-level, variables are at the pitch-level, so multiple
pitches by the same firm are different observations. The forecasted financial variables are fewer
than 614 when firms do not forecast over a longer horizon or when the denominator of a finan-
cial ratio is zero. A few pitches do not provide forecasted balance sheets or cash flow
statements.
20. A handful of firms predict negative capital expenditures for unknown reasons. This is not due to
entrepreneurs’ misunderstanding the sign because they often forecast negative capital expendi-
tures in some years but positive capital expenditures in others.
21. Table 2 has more observations than Optimism_Earn, Optimism_ShareCap, Optimism_Assets, and
Optimism_Lev in Table 1 because we include all the forecasts and realizations if a pitch’s multi-
ple years of financial statements have materialized, but only the earlier year for a pitch is used to
calculate the Optimism measures. Using the average of multiple years of forecasts and realiza-
tions to calculate the Optimism measures yields similar results in the regressions.
22. We only report the regression results for the first year because the results for subsequent years
are mostly qualitatively similar.
23. Unreported here, Assets is not significantly related to funding outcomes, which implies that the
positive relation between Sales1 and funding outcomes does not simply illustrate investors’ pre-
ference for firms that are expected to grow.
24. Similarly, Shane and Cable (2002) do not find that forecasted Earnings Before Interest and
Taxes are associated with whether venture capitalists invest in a venture.
25. For early-stage ventures, expenses have a strong value-creating investment component (e.g.,
research and development expense), causing losses to be less relevant (Armstrong et al., 2006;
Darrough & Ye, 2007).
26. Results for the unreported selection model are similar to those in Table 4, in which Sales,
Dividends, EquityFin, and PosDebtFin are significantly related to the likelihood of becoming
Funded.
27. Among unreported control variables, interestingly, FirmAge, ManagersAge, and TeamSize have
the opposite signs here compared with Table 4. This is caused by the correction of self-selection,
because these three variables are insignificant when we omit the inverse Mills ratio. The
Optimism measures behave similarly with or without the inverse Mills ratio, however.
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Evidence of Optimistic Bias and Mixed Crowd Wisdom in Equity Crowdfunding Forecasts

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Evidence of Optimistic Bias and Mixed Crowd Wisdom in Equity Crowdfunding Forecasts

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Koren M. Jo1 and Shuo Yang1

Hypothesis 1 (H1): Forecasts are associated with funding outcomes.

If investors incorporate forecasts in their investment decisions, whether they can do so

Hypothesis 2 (H2): Ex post optimistic bias in forecasts among funded projects is

Hypothesis 3 (H3): Forecasts are associated with the likelihood of a project’s

H1 and H3 in conjunction help address the question of crowd wisdom in

Outcome = a + b1 ForecastVar + b2 YrsForecasts + b3 BadForecasts + b4 PriorAssets

The dependent variable Outcome can be FundstoTarget, LnInvestors, or Funded

Ex Post Optimistic Bias and Funding Outcomes

unrelated to FundstoTarget or LnInvestors among funded projects in the second stage, so

Outcome = a + b1 Optimism + Controls + IMR + IndustryFE + YearFE + e: ð2Þ

The dependent variable is either FundstoTarget or LnInvestors. Optimism is one of the

Forecasts and Future Company Status

PrðNotActive = 1Þ = a + b1 ForecastVar + Controls + IndustryFE + e: ð3Þ

Optimism in Forecasted Financials

Table 1. Descriptive Statistics.

Variable N Minimum Q1 M Median Q3 Maximum

Panel B: Forecasted and Realized Fiscal Years Are Identical.

Forecast Signals and Funding Outcomes

Table 3. Forecasts Provided in Two Rounds by the Same Firms.

Sales1 0.057*** 0.105*** 0.078*

(1) (2) (3)

CapEx1 0.027 0.039 0.034

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Dividends 20.283*** 20.340* 20.428*

Ex Post Optimistic Bias in Forecasts and Funding Outcomes

Forecasts and Future Company Status

(1) (2) (3) (4) (5) (6) (7) (8)

Declaration of Conflicting Interests

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Sales1 0.057* 0.105* 0.078*