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Unintended consequences: essays on competition for capital and financial statement assurance
Dissertation

Unintended consequences: essays on competition for capital and financial statement assurance

Anik Choudhury
Doctor of Philosophy (Ph.D.), Drexel University
Jun 2024
DOI:
https://doi.org/10.17918/00010685
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Choudhury_Anik_20241.25 MB
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Abstract

Assurance Crowdfunding PCAOB Voluntary auditor attestation
This dissertation seeks to expand our understanding of the use of financial statement assurance (FSA) when raising capital by focusing on the influence of competition among capital seekers. The first essay provides an overview of markets for early-stage capital to highlight how they compare and contrast in terms of key market participants, disclosure requirements, and recent performance. The setting for this dissertation and the empirical work discussed in the second and third essay is the United States Regulation Crowdfunding (RegCF) market where a recent amendment allows startups to purse a higher overall maximum campaign target beginning on March 15, 2021 ($5,000,000, versus $1,070,000 prior to this date). The amendment is employed as a shock to competition among capital seekers and used to examine whether such competition impacts the demand for FSA (an internal signal of offering quality) in the second essay. The third essay examines whether such competition impacts the supply for FSA (an external signal of offering quality). The second essay documents evidence suggesting that this amendment discourages incremental investment in FSA among smaller RegCF campaigns, which also adversely impacts campaign outcomes as campaigns attract less investors to fund their campaign. These results suggest that there are unintended consequences to this amendment and, as a result, the amendment needs to be re-examined by regulators. The third essay documents evidence that high-quality auditors are less likely to provide FSA services to smaller campaigns following the amendment. Univariate results suggest that the amendment leads to a deterioration in the quality of RegCF campaigns. Collectively, these results suggest that as increasing competition reduces quality among campaigns competing for capital post-amendment, campaigns' decreased quality leads to decreased FSA services being provided by high-quality auditors. This study contributes to the accounting literature by providing evidence suggesting that high-quality auditors prefer less risky clients.

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