ICO vs. Equity Financing Under Imperfect, Complex and Asymmetric Information

Miglo, Anton (2020): ICO vs. Equity Financing Under Imperfect, Complex and Asymmetric Information.

Abstract

This paper offers a model of a firm that raises funds for financing an innovative business project and chooses between ICO (initial coin offering) and equity financing. The model is based on information problems associated with both ICO and equity financing well documented in literature. The model provides several implications that have not yet been tested. For example we find that the message complexity can be benefitial for firms conducting ICOs. Also high-quality projects can use ICO as a signal of quality. Thirdly the average size of projects undertaking equity financing is larger than that of firms conducting ICO.

• Item Type: MPRA Paper
• Language: English
• Keywords: asymmetric information, complex information, initial coin offering (ICO), equity financing, signalling
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L26 - Entrepreneurship; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M13 - New Firms ; Startups; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration > M15 - IT Management; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O32 - Management of Technological Innovation and R&D

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