Initial Coin Offerings, Asymmetric Information, and Loyal CEOs

Small Business Economics, Forthcoming

42 Pages Posted: 23 Apr 2018 Last revised: 22 Jan 2020

See all articles by Paul P. Momtaz

Paul P. Momtaz

University of California, Los Angeles (UCLA) - Anderson School of Management; University College London Center for Blockchain Technologies

Date Written: July 12, 2018

Abstract

A defining feature of initial coin offerings (ICOs) is that entrepreneurs bear the full marginal investment cost but profit only partially from the marginal investment payoff. This design may exacerbate agency conflicts inherent in corporate finance. As a consequence, signals of entrepreneurial quality such as CEO loyalty, which is an established concept in social psychology and can easily be linked to potential agency conflicts in corporate settings, might be a first-order determinant of economic outcomes in the ICO market. Consistent with this, I find that loyal CEOs have to offer less financial incentives to attract investors and are still able to raise more proceeds, conduct ICOs more thoroughly, and are less likely to fail. The findings are consistent with the hypothesis that asymmetric information between entrepreneurs and investors entail agency costs that are decreasing in CEO loyalty.

Keywords: Entrepreneurial Finance, Corporate Finance, Initial Coin Offerings, Asymmetric Information, Agency Theory, CEO Loyalty

JEL Classification: G24, G32, K22, L26

Suggested Citation

Momtaz, Paul P., Initial Coin Offerings, Asymmetric Information, and Loyal CEOs (July 12, 2018). Small Business Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3167061 or http://dx.doi.org/10.2139/ssrn.3167061

Paul P. Momtaz (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

University College London Center for Blockchain Technologies ( email )

UCL CBT UCL Computer Science
Malet Place London WC
London, London
United Kingdom

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