The Information Content of ICO White Papers
70 Pages Posted: 29 Oct 2018 Last revised: 21 Jun 2019
Date Written: June 21, 2019
White papers are likely the most important source of information provided to potential ICO investors in platform-based ventures issuing utility tokens. We use textual analysis to measure the information content of white paper documents as a proxy for information asymmetry between ICO issuers and investors. Our comprehensive empirical evidence suggests that good type ICO issuers signal through the provision of excess or new textual information not contained in recent and peer white papers. Signaling is impaired during the ICO process as investors include potentially biased expert ratings in their investment decision-making. This results in good and bad type ICO issuers successfully raising funds and exchange-listing their tokens. Once tokens trade in the secondary market, the informative white paper content signal helps to separate good and bad ICO issuers but the expert rating do not. This generates adverse selection costs as not all good ICO issuers receive funding or refrain from tapping the token markets.
Keywords: Initial coin offerings, white paper, textual analysis, information content, signaling, platform economy, ICO expert ratings
JEL Classification: G30, M13, O16, K29, K40
Suggested Citation: Suggested Citation