Dynamics of Voluntary Disclosure in the Unregulated Market for Initial Coin Offerings
Posted: 25 Jul 2018 Last revised: 30 Jun 2020
Date Written: October 3, 2018
This study investigates the information disclosure behavior of young and innovative ventures in the unregulated market for Initial Coin Offerings (ICOs). ICOs, also termed token sales or crowdsales, are a novel fundraising mechanism that allows young and innovative software ventures to raise capital from the public outside established disclosure requirements. In this context, we examine whether ventures voluntarily convey relevant information and how investors respond to non-mandated disclosure. Drawing on a unique hand-collected dataset of more than 1,100 token crowdsales that have raised more than $7B since 2016, this study offers an exploratory empirical classification of ICOs and examines to what extent the quality and depth of the information disclosed can explain the characteristics of success and failure among ICOs and the corresponding projects. The findings suggest that quality disclosures, such as the preparedness or the availability and quality of the source codes, can predict the outcome of a project in the form of listing of 65 crypto exchanges within a reasonable period after the ICO. However, the substantial fluctuations in funding amounts are determined by market dynamics, such as capital gains in cryptocurrencies relative to fiat, competition, and timing, as well as media surrounding the project.
Keywords: initial coin offerings, token sales, crowdsales, fintech, voluntary disclosure, entrepreneurial finance, electronic financial markets, information environment, blockchain
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