Does Consumer Protection Enhance Disclosure Credibility in Reward Crowdfunding?

78 Pages Posted: 12 Jun 2018 Last revised: 16 Jul 2018

See all articles by Stefano Cascino

Stefano Cascino

London School of Economics

Maria M. Correia

London School of Economics and Political Science

Ane Tamayo

London School of Economics & Political Science (LSE)

Date Written: July 3, 2018

Abstract

We study how the interplay of disclosure and regulation shapes capital allocation in reward crowdfunding. Using data from Kickstarter, the largest online reward crowdfunding platform, we show that, even in the absence of clear regulation and enforcement mechanisms, disclosure helps entrepreneurs access capital for their projects and bolsters engagement with potential project backers, consistent with the notion that disclosure mitigates moral hazard. We further document that, subsequent to a rule change on Kickstarter that increases the threat of consumer litigation, the association between project funding and disclosure increases. This evidence suggests that consumer protection regulation enhances the perceived credibility of disclosure. We find the effect of the rule change to be more pronounced in states with stricter consumer protection regulations. Taken together, our findings yield important insights on the role of disclosure, as well as on the potential effects of increased regulation on crowdfunding platforms.

Keywords: Crowdfunding, Disclosure, Consumer Protection, Regulation, Enforcement

JEL Classification: G18, M41, M48, O31, O38

Suggested Citation

Cascino, Stefano and Correia, Maria M. and Tamayo, Ane Miren, Does Consumer Protection Enhance Disclosure Credibility in Reward Crowdfunding? (July 3, 2018). Available at SSRN: https://ssrn.com/abstract=3170230 or http://dx.doi.org/10.2139/ssrn.3170230

Stefano Cascino (Contact Author)

London School of Economics ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0)20 7955 6457 (Phone)
+44 (0)20 7955 7420 (Fax)

HOME PAGE: http://www.lse.ac.uk/accounting/people/stefano-cascino

Maria M. Correia

London School of Economics and Political Science ( email )

Houghton St
London, London WC2A 2AE
United Kingdom

Ane Miren Tamayo

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0)20 78494689 (Phone)

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