Articlehybrid2021

The Wisdom of Crowds in FinTech: Evidence from Initial Coin Offerings

148 citations0/0 files storedThe Review of Corporate Finance Studies

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FinTech, Crowdfunding, Digital Finance Financial Markets and Investment Strategies Blockchain Technology Applications and Security

Abstract

Abstract Certification by analysts on a FinTech platform that harnesses the “wisdom of crowds” is associated with successful initial coin offerings (ICOs). We show that favorable ratings by a group of analysts with diverse backgrounds positively predict fundraising success and long-run token performance. Analysts’ ratings also help detect potential fraud ex ante. We document that analysts have career concerns and are incentivized by the platform to issue informative ratings. Overall, our results suggest that a market-based certification process that relies on a diverse group of individuals is at play in financing blockchain startups. (JEL D82, G11, G24, G32, G34, L26).

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1970The Market for "Lemons": Quality Uncertainty and the Market Mechanism 1977INFORMATIONAL ASYMMETRIES, FINANCIAL STRUCTURE, AND FINANCIAL INTERMEDIATION 1997Financial Intermediation, Loanable Funds, and The Real Sector 1977Informational Asymmetries, Financial Structure, and Financial Intermediation 1991The Long‐Run Performance of initial Public Offerings 1984The market for “lemons”: quality uncertainty and the market mechanism 1989How investment bankers determine the offer price and allocation of new issues 2014Wisdom of Crowds: The Value of Stock Opinions Transmitted Through Social Media

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2019Cryptocurrencies: Stylized facts on a new investible instrument 2021The Role of Disclosure and Information Intermediaries in an Unregulated Capital Market: Evidence from Initial Coin Offerings 2018Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales 2023Tokenomics: When Tokens Beat Equity 2017Initial Coin Offerings (ICOs): Risks, Regulation, and Accountability

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