Cheap Signals in Security Token Offerings (STOs)

Abstract

Blockchain-based security token offerings (STOs) provide a new way of crowdfunding and corporate financing. Building on signalling theory, this paper examines 1) whether companies conducting an STO make use of cheap signals to influence investment behaviour and 2) if such use of cheap signals is effective. We analyse a dataset of 151 STOs and identify that cheap signals of human capital and social media are used by projects and have a positive effect on funding success, while cheap signals of external network size negatively affect funding success. We argue that these signals can be exploited by STOs to influence investor behaviour raising concerns for investor protection.

Keywords: Entrepreneurial Finance, Blockchain, Crowdfunding, Initial Coin Offering, Initial Public Offering, Corporate Finance