Financial statement audit and regulatory focus in equity crowdfunding decisions

Equity crowdfunding (ECF) allows amateur investors to fund startups and small and medium-size enterprises (SMEs). Unlike initial public offerings, ECF requires minimal disclosures, fast-tracking equity raising. ECF's popularity has surged, yet little is known about how assurance services might impact investor decisions. Drawing on regulatory focus theory, we examine how independent assurance, pitch characteristics, and investor regulatory focus influence investment decisions in ECF. Our results support our hypotheses that audits of historical financial information increase ECF investors' likelihood to invest. Further, interactions between the audit, investors' regulatory focus, and the regulatory focus of the ECF pitch increase investment such that the presence of an audit increases investment for prevention-focused individuals, and especially the audit is most likely to increase investment for prevention-focused investors when the SME's pitch is also prevention-focused. Overall, we contribute to literature by exploring the influence of assurance in a new context of ECF, shedding light on previously unexplored aspects of investor decision-making. Audits Increase Investment Likelihood in Equity Crowdfunding Decisions. Equity crowdfunding lets regular people invest in small businesses without the strict rules of traditional stock offerings. This study looked at how things like independent audits and the way a business pitches itself affect people's decisions to invest. We found that ECF opportunities with audited financial statements are more likely to be funded and this effect is amplified when prevention-focused investors view a pitch that emphasizes caution. This research is important because it is the first to explore how these factors influence equity crowdfunding decisions. The principal implication of this study is that getting an audit could boost investor confidence, especially if the investor and pitch are focused on safety and security Overall, this study demonstrates how assurance services and investor mindsets shape the crowdfunding landscape.