Choice Between IEO and ICO: Speed vs. Liquidity vs. Risk

21 Pages Posted: 15 Apr 2020

See all articles by Anton Miglo

Anton Miglo

Birmingham City University

Date Written: March 26, 2020

Abstract

This paper analyzes a financing problem for an innovative firm that is considering launching a web-based platform. Our model is the first one that analyzes an entrepreneur's choice between initial exchange offering (IEO) and initial coin offering (ICO). Compared to ICO, under IEO the firm is subject to screening by an exchange that reduces the risk of investment in tokens; also the firm gets access to a larger set of potential investors; finally tokens become listed on an exchange faster. We argue that IEO is a better option for the firm if: 1) the investment size is relatively large; 2) the extent of moral hazard problems faced by the firm is relatively large; 3) the degree of investors' impatience is relatively small. We aslo find a non-linear relationship between firm quality and its financing choice. Most of these predictions are new and have not been tested sofar.

Keywords: FinTech, Entrepreneurial Finance, Initial Coin Offering, Initial Exchange Offering, Moral Hazard, Utility Tokens, Listing

JEL Classification: D82, G32, L11, L26, M13

Suggested Citation

Miglo, Anton, Choice Between IEO and ICO: Speed vs. Liquidity vs. Risk (March 26, 2020). Available at SSRN: https://ssrn.com/abstract=3561439 or http://dx.doi.org/10.2139/ssrn.3561439

Anton Miglo (Contact Author)

Birmingham City University ( email )

School of Social Sciences
City North Campus
Birmingham, West Midlands B42 2SU
United Kingdom

HOME PAGE: http://https://www.bcu.ac.uk/business-school/about-us/our-staff/anton-miglo

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