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Does consumer protection enhance disclosure credibility in reward crowdfunding

Cascino, Stefano, Correia, Maria and Tamayo, Ane (2019) Does consumer protection enhance disclosure credibility in reward crowdfunding. Journal of Accounting Research, 57 (5). pp. 1247-1302. ISSN 0021-8456

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Identification Number: 10.1111/1475-679X.12289

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.

Item Type: Article
Official URL: https://onlinelibrary.wiley.com/journal/1475679x#p...
Additional Information: © 2019 University of Chicago on behalf of the Accounting Research Center
Divisions: Accounting
Subjects: H Social Sciences > HF Commerce
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
M - Business Administration and Business Economics; Marketing; Accounting > M4 - Accounting and Auditing > M41 - Accounting
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O38 - Government Policy
Date Deposited: 15 Oct 2019 11:24
Last Modified: 30 May 2020 23:10
URI: http://eprints.lse.ac.uk/id/eprint/102103

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