De-crypto-ing Signals in Initial Coin Offerings: Evidence of Rational Token Retention

55 Pages Posted: 6 Dec 2018 Last revised: 2 May 2019

See all articles by Tetiana Davydiuk

Tetiana Davydiuk

Carnegie Mellon University - David A. Tepper School of Business

Deeksha Gupta

Carnegie Mellon University

Samuel Rosen

Temple University, Fox School of Business

Date Written: October 31, 2018

Abstract

Using the market for initial coin offerings (ICOs) as a laboratory, we provide evidence that entrepreneurs use retention to signal their quality to investors in the presence of asymmetric information. ICO investors face a high degree of uncertainty because of the unregulated and opaque nature of the ICO market. Using a detailed dataset on 7,450 ICOs, we show that ICOs that retain a larger fraction of their tokens are more successful in their funding efforts. We implement an instrumental variables strategy and estimate that a 1 p.p. increase in token retention leads to a 1.4 p.p. increase in fundraising success. Moreover, we find that signaling incentives are stronger in periods of elevated market noise.

Keywords: asymmetric information, signaling, entrepreneurial financing, ICOs

JEL Classification: D82, G32, L26

Suggested Citation

Davydiuk, Tetiana and Gupta, Deeksha and Rosen, Samuel, De-crypto-ing Signals in Initial Coin Offerings: Evidence of Rational Token Retention (October 31, 2018). Available at SSRN: https://ssrn.com/abstract=3286835 or http://dx.doi.org/10.2139/ssrn.3286835

Tetiana Davydiuk

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Deeksha Gupta

Carnegie Mellon University ( email )

Pittsburgh, PA 15213-3890
United States

Samuel Rosen (Contact Author)

Temple University, Fox School of Business ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

HOME PAGE: http://sites.google.com/view/samuel-rosen/

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