The Role of Assurance in Equity Crowdfunding
62 Pages Posted: 8 Oct 2019
Date Written: July 2019
Equity crowdfunding (ECF) refers to the process of raising capital by selling securities through the internet to small, non-accredited investors. The ECF market is regulated by the SEC and the requirements include provision of assured financial statements. Assurance can be provided in one of three ways: certification by management, or an audit or review by an independent accountant. We utilize the ECF setting to examine whether assurance facilitates capital formation. We find that firms that provide either reviewed or audited financial statements are more likely to reach their target capital, attract a greater number of investors, and raise more capital relative to firms that only provide management-certified financial statements. We do not find evidence that equity crowdfunding campaigns accompanied by audited financial statements are more successful than those with reviewed financial statements. Our findings provide evidence on how assurance facilitates capital formation in a new type of capital market.
Keywords: equity crowdfunding, assurance, audit, reviews
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