The (Limited) Power of Blockchain Networks for Information Provision

55 Pages Posted: 5 Nov 2019 Last revised: 24 Jul 2021

See all articles by Benedikt Franke

Benedikt Franke

SKEMA Business School

Qi Gao

University of Mannheim - Accounting and Taxation; University of Mannheim Graduate School of Economic and Social Sciences, Students

André Stenzel

University of Mannheim and MaCCI

Date Written: July 23, 2021

Abstract

We investigate the potential and limits of privacy-preserving blockchain technology to rival information provision by third-party intermediaries. We provide a theoretical model in which heterogeneous firms choose between adopting a blockchain or relying on traditional institutions to inform the capital market. The blockchain's ability to generate information about a firm depends on the firm-specific data profile and all firms' endogenous adoption decisions, capturing fundamental features of the technology. Blockchains can improve the information environment because firms' adoption decisions may serve as a credible signal of firms' values, and information provision by the blockchain itself may outperform traditional institutions. However, we characterize an equilibrium in which neither of the two channels realizes its potential and information provision declines not only for individual firms but also in aggregate. We further discuss potential warning signs and implications relevant to policymakers and the broader accounting profession.

Keywords: Blockchain, Disclosure, Information provision, Peer-to-peer, Technology adoption

JEL Classification: D21, D40, M41, M48

Suggested Citation

Franke, Benedikt and Gao, Qi and Stenzel, André, The (Limited) Power of Blockchain Networks for Information Provision (July 23, 2021). Available at SSRN: https://ssrn.com/abstract=3475383 or http://dx.doi.org/10.2139/ssrn.3475383

Benedikt Franke (Contact Author)

SKEMA Business School ( email )

Lille
France

Qi Gao

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

University of Mannheim Graduate School of Economic and Social Sciences, Students ( email )

Mannheim
Germany

André Stenzel

University of Mannheim and MaCCI ( email )

Department of Economics, University of Mannheim
L7, 3-5
Mannheim, 68131
Germany

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