Invest in What you Know? How Investor-Customers React to Corporate Restatements

It is increasingly common for individuals to be both investors in, and customers of, a company. Despite its prevalence, we have little understanding of whether these investor-customers’ investment judgments differ from those of investors-only. Using three experiments, we examine how investor-customers’ judgments differ from those of investors-only in the wake of an earnings restatement, and how investor-customers respond to company-issued disclosures that include favorable information designed to mitigate the effects of the restatement. Drawing on prior marketing research, we predict and find that investor-customers identify more strongly with the company and sell fewer shares in response to a restatement than investors-only. Further, unlike investors-only, investor-customers’ judgments are not influenced by favorable information in a company-issued disclosure. Our results have implications for companies that are actively encouraging investor-customer relationships and for investors themselves.