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

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  • Anton Miglo

    (Adam Smith Business School, College of Social Science, University of Glasgow, Glasgow G12 8QQ, UK)

Abstract

This paper analyzes a financing problem for an innovative firm that is considering launching a web-based platform. The model developed in the paper 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 receives access to a larger set of potential investors; finally tokens become listed on an exchange faster. The paper argues 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. Furthermore, a non-linear relationship between firm quality and its financing choice is found. Most of these predictions are new and have not been tested so far.

Suggested Citation

  • Anton Miglo, 2022. "Choice between IEO and ICO: Speed vs. Liquidity vs. Risk," FinTech, MDPI, vol. 1(3), pages 1-18, September.
    • Handle: RePEc:gam:jfinte:v:1:y:2022:i:3:p:21-293:d:911273
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    Cited by:

    1. Thewissen, James & Shrestha, Prabal & Torsin, Wouter & Pastwa, Anna M., 2022. "Unpacking the black box of ICO white papers: A topic modeling approach," Journal of Corporate Finance, Elsevier, vol. 75(C).
    2. Sun, Yan & Yang, Sung-Byung, 2024. "Are ICOs the best? A comparison of different fundraising models in blockchain-based fundraising," Journal of Financial Stability, Elsevier, vol. 73(C).
    3. Anton Miglo, 2021. "STO vs. ICO: A Theory of Token Issues under Moral Hazard and Demand Uncertainty," JRFM, MDPI, vol. 14(6), pages 1-35, May.
    4. Pastwa, Anna M. & Shrestha, Prabal & Thewissen, James & Torsin, Wouter, 2021. "Unpacking the black box of ICO white papers: a topic modeling approach," LIDAM Discussion Papers LFIN 2021018, Université catholique de Louvain, Louvain Finance (LFIN).
    5. Ruchika Jain & Satinder Kumar & Kiran Sood & Simon Grima & Ramona Rupeika-Apoga, 2023. "A Systematic Literature Review of the Risk Landscape in Fintech," Risks, MDPI, vol. 11(2), pages 1-15, February.

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    More about this item

    Keywords

    risk in fintech; entrepreneurial finance; initial coin offering; initial exchange offering; moral hazard; utility tokens; listing;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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