Does Consumer Protection Enhance Disclosure Credibility in Reward Crowdfunding?

Journal of Accounting Research 57 (5): 1247-1302, December 2019

114 Pages Posted: 12 Jun 2018 Last revised: 15 Feb 2020

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: October 14, 2019

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 change in Kickstarter’s terms of use that increases the threat of consumer litigation, the association between project funding and disclosure becomes stronger. This evidence suggests that consumer protection regulation enhances the perceived credibility of disclosure. We find the effect of the change in terms of use 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? (October 14, 2019). Journal of Accounting Research 57 (5): 1247-1302, December 2019. 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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