Can Blockchain Technology Help Overcome Contractual Incompleteness? Evidence from State Laws

Management Science, forthcoming

81 Pages Posted: 3 Sep 2021 Last revised: 8 Nov 2023

See all articles by Mark A. Chen

Mark A. Chen

Georgia State University - Robinson College of Business

Shuting (Sophia) Hu

Baylor University - Department of Finance, Insurance & Real Estate

Joanna (Xiaoyu) Wang

Georgia State University

Qinxi Wu

Baylor University - Hankamer School of Business

Date Written: June 1, 2023

Abstract

Real-world contractual agreements between firms are often incomplete, leading to suboptimal investment and loss of value in supply-chain relationships. To what extent can blockchain technology help alleviate problems arising from contractual incompleteness? We examine this issue by exploiting a quasi-natural experiment based on the staggered adoption of U.S. state laws that increased firms’ in-state ability to develop, adopt, and use blockchain technology. We find that, after exposure to a pro-blockchain law, firms with greater asset specificity exhibit more positive changes to Tobin’s Q, R&D, and blockchain-related innovation. Also, such firms appear to rely less on vertical integration, form more strategic alliances, and shift their emphasis to less geographically proximate customers. Overall, our results suggest that blockchain technology can help firms remedy constraints and inefficiencies arising from contractual incompleteness.

Keywords: Blockchain, smart contracts, incomplete contracts, hold-up, firm value, vertical integration, corporate policy

JEL Classification: L10, L14 O0, O33, O38

Suggested Citation

Chen, Mark A. and Hu, Shuting and Wang, Xiaoyu and Wu, Qinxi, Can Blockchain Technology Help Overcome Contractual Incompleteness? Evidence from State Laws (June 1, 2023). Management Science, forthcoming, Available at SSRN: https://ssrn.com/abstract= or http://dx.doi.org/10.2139/ssrn.3915895

Mark A. Chen (Contact Author)

Georgia State University - Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Shuting Hu

Baylor University - Department of Finance, Insurance & Real Estate ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States

Xiaoyu Wang

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

Qinxi Wu

Baylor University - Hankamer School of Business ( email )

Waco, TX 76798
United States

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