Securities-Based Crowdfunding by Startups: Does Auditor Attestation Matter?

Gong, J., J. Krishnan, Y. Liang. Securities-Based Crowdfunding by Startups: Does Auditor Attestation Matter? The Accounting Review. Forthcoming.

54 Pages Posted: 8 Jul 2020 Last revised: 4 May 2021

See all articles by Jing Gong

Jing Gong

Lehigh University - College of Business

Jayanthi Krishnan

Temple University - Department of Accounting

Yi Liang

Temple University - Department of Accounting

Date Written: April 2, 2021

Abstract

We examine financing outcomes for small businesses seeking to sell public securities in a setting
characterized by high information asymmetry, weak requirements for auditor participation, and a
complete absence of Big N auditors. Issuers that raise capital from small, unsophisticated
investors through crowdfunding, under the Securities and Exchange Commission’s Regulation
Crowdfunding (RegCF), often need no auditor attestation or need only weak attestation in the
form of reviews, not audits, of their financial statements. We find that auditor reviews are
positively associated with both the probability of crowdfunding success and the total amount
raised. Further, we compare outcomes for issuers that procure auditor reviews voluntarily and
mandatorily, and document that issuers with voluntary reviews have better outcomes. We
conjecture that, for issuers that voluntarily procure reviews, the reviews serve as signals of high
future prospects. Finally, the positive effect of reviews is concentrated in PCAOB-registered
auditors.

Keywords: crowdfunding, JOBS Act, auditor reviews, voluntary auditor attestation

JEL Classification: G18, M41, M42, M48

Suggested Citation

Gong, Jing and Krishnan, Jayanthi and Liang, Yi, Securities-Based Crowdfunding by Startups: Does Auditor Attestation Matter? (April 2, 2021). Gong, J., J. Krishnan, Y. Liang. Securities-Based Crowdfunding by Startups: Does Auditor Attestation Matter? The Accounting Review. Forthcoming., Available at SSRN: https://ssrn.com/abstract=3626454 or http://dx.doi.org/10.2139/ssrn.3626454

Jing Gong

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Jayanthi Krishnan

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
215-204-3085 (Phone)

Yi Liang (Contact Author)

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

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