Governance in the Absence of Regulation: A Study of Initial Coin Offerings

68 Pages Posted: 14 Mar 2019

See all articles by William C. Johnson

William C. Johnson

University of Massachusetts Lowell - The Robert J. Manning School of Business

Sangho Yi

Sogang University; affiliation not provided to SSRN

Date Written: February 23, 2019

Abstract

We examine whether the market for ICOs can alleviate asymmetric information and incentive problems through self-imposed governance mechanisms despite the limited regulation in this market. We propose what we call the substitution hypothesis which states that market forces incentivize ICO issuers to voluntarily adopt governance mechanisms which effectively bind their behavior as a substitute for regulatory involvement. The substitution hypothesis also predicts that these voluntarily adopted governance mechanisms lead to lower underpricing, better ex-post performance, higher ICO success and more efficient price discovery in the secondary market. We find comprehensive empirical support for the substitution hypothesis. Our results suggest that these governance mechanisms help to make ICOs a viable and innovative method of financing.

Keywords: Initial Coin Offering, governance, moral hazard, Regulation of ICOs

JEL Classification: G30, G38

Suggested Citation

Johnson, William C. and Yi, Sangho and Yi, Sangho, Governance in the Absence of Regulation: A Study of Initial Coin Offerings (February 23, 2019). Available at SSRN: https://ssrn.com/abstract=3337096 or http://dx.doi.org/10.2139/ssrn.3337096

William C. Johnson (Contact Author)

University of Massachusetts Lowell - The Robert J. Manning School of Business ( email )

One University Avenue
Lowell, MA 01854
United States

Sangho Yi

affiliation not provided to SSRN

Sogang University ( email )

Seoul 121-742
Korea, Republic of (South Korea)
82-2-705-8864 (Phone)

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