Reference : Institutions, regulations and initial coin offerings: An international perspective
Scientific journals : Article
Business & economic sciences : Finance
Institutions, regulations and initial coin offerings: An international perspective
Arslan-Ayaydin, Ozgur mailto [University of Illinois at Chicago > Department of Finance > > >]
Shrestha, Prabal mailto [Department of Financial Management > > > >]
Thewissen, James mailto [Université Catholique de Louvain - UCL > Department of Finance > > >]
Torsin, Wouter mailto [Université de Liège - ULiège > HEC Liège : UER > Financial Reporting and Audit >]
International Review of Economics and Finance
Yes (verified by ORBi)
[en] Initial coin offerings ; Trustworthiness ; Behavioral Finance ; Heuristics ; Regulation
[en] Investors and policy-makers still know little about the dynamics of initial coin offerings (ICOs) as a funding mechanism. Investors’ decisions to contribute to ICOs are essentially a leap of faith given ICOs’ decentralized nature coupled with the lack of regulatory oversight. Drawing on psychological theories on cognitive bias, we propose that one heuristic by which investors assess an ICO’s trustworthiness is the reputation of the ICO’s country of origin, which we proxy as institutional strength. Examining 2077 ICOs from 105 countries between 2015 and 2018, we find that ICOs originating in countries with stronger institutions are more likely to be traded, raise more funds, and experience lower price volatility. This relationship is particularly relevant for countries with no or few ICO regulations. Our results show that when faced with fewer regulations and higher uncertainty, investors use an ICO’s country of origin as a heuristic for the ICO’s unobserved trustworthiness.

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