Financial Reporting and Entrepreneurial Finance: Evidence from Equity Crowdfunding

57 Pages Posted: 30 Sep 2019 Last revised: 26 Jun 2020

See all articles by John Donovan

John Donovan

University of Notre Dame - Department of Accountancy

Date Written: June 26, 2020

Abstract

I study the role of accounting and financial reporting in entrepreneurial finance by examining whether financial statement disclosure increases capital raised through equity crowdfunding. On average, I find a positive association between financial reporting and capital raised, suggesting that accounting reduces information asymmetry with potential investors. Additionally, the importance of financial reporting in equity crowdfunding varies predictably in the cross-section. Specifically, financial reporting is associated with greater capital raised when the firm has longer historical operations, during periods of higher macroeconomic uncertainty, and when complemented by detailed shareholder agreements. Finally, using a mediation analysis, I find evidence that financial reporting is indirectly associated with better ex-post performance by increasing the likelihood of raising capital. These results provide insight into the role of financial reporting in entrepreneurial finance and inform the ongoing debate over regulation and disclosure in the equity crowdfunding market.

Keywords: crowdfunding, entrepreneurship, financial reporting, regulation

JEL Classification: G10, L20, M13, M40, M41

Suggested Citation

Donovan, John, Financial Reporting and Entrepreneurial Finance: Evidence from Equity Crowdfunding (June 26, 2020). Available at SSRN: https://ssrn.com/abstract=3460696 or http://dx.doi.org/10.2139/ssrn.3460696

John Donovan (Contact Author)

University of Notre Dame - Department of Accountancy ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

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