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Initial coin offerings, asymmetric information, and loyal CEOs

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  • Paul P. Momtaz

    (UCLA)

Abstract

A defining feature of initial coin offerings (ICOs) is that entrepreneurs bear the full marginal investment cost but profit only partially from the marginal investment payoff. This design may exacerbate agency conflicts inherent in corporate finance. As a consequence, signals of entrepreneurial quality such as CEO loyalty, which is an established concept in social psychology and can easily be linked to potential agency conflicts in corporate settings, might be a first-order determinant of economic outcomes in the ICO market. Consistent with this, I find that loyal CEOs have to offer lower financial incentives to attract investors and are still able to raise more proceeds, conduct ICOs more thoroughly, and are less likely to fail. The findings are consistent with the hypothesis that asymmetric information between entrepreneurs and investors entail agency costs that are decreasing in CEO loyalty.

Suggested Citation

  • Paul P. Momtaz, 2021. "Initial coin offerings, asymmetric information, and loyal CEOs," Small Business Economics, Springer, vol. 57(2), pages 975-997, August.
    • Handle: RePEc:kap:sbusec:v:57:y:2021:i:2:d:10.1007_s11187-020-00335-x
    DOI: 10.1007/s11187-020-00335-x
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    References listed on IDEAS

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    Cited by:

    1. Kolbe, Maura & Mansouri, Sasan & Momtaz, Paul P., 2022. "Why do video pitches matter in crowdfunding?," Journal of Economics and Business, Elsevier, vol. 122(C).
    2. Muneer M. Alshater & Mayank Joshipura & Rim El Khoury & Nohade Nasrallah, 2023. "Initial Coin Offerings: a Hybrid Empirical Review," Small Business Economics, Springer, vol. 61(3), pages 891-908, October.
    3. Xia, Feilian & Thewissen, James & Shrestha, Prabal & Yan, Shuo, 2024. "The power of a name: Exploring the relationship between ICO name fluency and investor decision making," International Review of Financial Analysis, Elsevier, vol. 93(C).
    4. Feilian Xia & James Thewissen & Winifred Huang & Shuo Yan, 2024. "Founder-CEO Extraversion and Sustainability Orientation in Initial Coin Offerings," Entrepreneurship Theory and Practice, , vol. 48(4), pages 941-980, July.
    5. Alessandro Bitetto & Paola Cerchiello, 2024. "Initial Coin Offerings: can ESG mitigate Underpricing?," DEM Working Papers Series 221, University of Pavia, Department of Economics and Management.
    6. Julian Bafera & Simon Kleinert, 2023. "Signaling Theory in Entrepreneurship Research: A Systematic Review and Research Agenda," Entrepreneurship Theory and Practice, , vol. 47(6), pages 2419-2464, November.
    7. Conlon, Thomas & Corbet, Shaen & Hou, Yang (Greg), 2024. "Contagion effects of permissionless, worthless cryptocurrency tokens: Evidence from the collapse of FTX," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).

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