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

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 the 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 only weak auditor attestation in the form of reviews, not audits, of their financial statements. We find that (1) auditor reviews are positively associated with both the probability of crowdfunding success and the total amount raised, and (2) this positive association is stronger for PCAOB-registered auditors. Further, by comparing voluntary and mandatory users of the auditor reviews, we document monitoring and signaling benefits of the reviews. We conjecture that, for issuers that voluntarily procure reviews, the reviews serve to signal their high future prospects