ABSTRACT
Initial Coin Offering (ICO) is an emerging form of venture capital for startups. But little is known about how ICO affects firms’ tendency to engage in misconducts. Using a hand-collected sample of Chinese startups between 2016 and 2019, we find that ICO-backed firms engage in more corporate misconducts compared with VC-backed firms. Our baseline results are robust after adopting the extent of openness to western countries forced by unequal treaty as an instrument variable. Furthermore, our findings suggest that weak monitoring channel and resource independence channel are the underlying channels for the association between ICO and corporate misconducts. We also find that ICO-backed firms are more likely to go bankrupt compared with VC-backed firms in the future. Overall, our findings shed more lights on the dark side of ICO and indicate that the government should exercise stronger oversight on ICO in emerging countries.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1. Retrieved from https://icobench.com/ on February 26, 2021.
2. We only keep ICO-backed firms that successfully reach their soft cap goals. In other words, we exclude failed ICO-backed firms from our research sample. Meanwhile, we do not find any ICO-backed firms who issue security tokens in our sample.
3. Find more details at following website. ICOrating: https://icorating.com/; ICObench: https://icobench.com/.
4. Tianyancha is a platform that provides comprehensive information of both publicly traded firms and private firms in China which is similar to Crunchbase. Tianyancha provides basic business information, such as location, founding date, operating status, senior executives, and sub-organizations. Tianyancha also provides the information of trademarks, patents, judgments of lawsuits and record of penalties, aggregating the data from various government websites, such as National Intellectual Property Administration, National Enterprise Credit Information Publicity System, China Judgments Online and China Judgments Enforcement Information.
5. The codes of these two industries are 45101000 and 45102000 in Wind classification.
6. We use Wilcoxon rank-sum test to compare the median difference between VC-backed firms and ICO-backed firms.
7. The ports opened by unequal treaties locate in different regions of China, such as Tientsin (Tianjin), Kalgan (Zhangjiakou), Newchwang (Yingkou) in the North; Canton (Guangzhou), Swatow (Shantou), Amoy (×iamen), Foochow (Fuzhou) in the South; Soochow (Suzhou), Shanghai, Hangchow (Hangzhou), Ningpo (Ningbo), Wenchow (Wenzhou) and Wuhow (Wuhu) in the East; Chungking (Chongqing) in the West, and Ichang (Yichang), Hankow (Hankou), Shasi (Shashi) in central China.
8. China Core Newspapers Full-text Database (CCND) is a sub-database on the China National Knowledge Infrastructure (CNKI) platform.