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Initial coin offerings, asymmetric information, and loyal CEOs


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.

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  1. I refrain here from providing a more detailed explanation of what ICOs are and how they work because there are many excellent references that provide comprehensive discussions. For a technical classification of tokens and coins, see Amsden and Schweizer (2018). For a discussion of the different token types and ICO mechanisms, see Momtaz (2019b) ICO and token design options are discussed in Howell et al. (2018). A comprehensive ICO market overview with detailed summary statistics is shown in Momtaz et al. (2019). The ICO process from the first idea to the completion of an ICO and the token listing is presented in Momtaz (2018). Thorough comparisons of ICOs to other financing instruments available to start-ups are available in Blaseg (2018), Momtaz (2018), and Lipusch (2018). The geography of ICOs is discussed in Huang et al. (2018). Fisch (2019) also presents a holistic overview of ICOs.

  2. For excellent recent surveys of these more traditional entrepreneurial financing methods, see Cumming and Groh (2018) and Wallmeroth et al. (2018).

  3. An empirical overview of the ICO market evolution since 2013 is provided in Momtaz (2020b). A detailed count of ICOs is available at and The website provides a current count of the number of tokens created on the Ethereum blockchain.

  4. In other words, tokens can be viewed as profit-sharing contracts. Hence, once an entrepreneur raises funds, he or she pays for all investments from the raised funds, while the profits from the investment have to be shared with the tokenholders. This may create a disincentive for optimal investments.

  5. Other token types include security and cryptocurrency tokens (Amsden and Schweizer 2018; Momtaz et al. 2019) However, most ICOs are designed to issue utility tokens. Utility tokens can be used to pay for products and services of platforms yet to be developed.

  6. The legal status of utility tokens is determined, in the USA, by the Howey test. If a token fails the Howey test, and most tokens are deliberately designed to fail it, then it is not subject to securities laws and falls into a legal gray zone, in which investors effectively cannot regress claims on regulations as investors in traditional asset classes could. See, for a discussion of the Howey test and its consequences, Howell et al. (2018), Momtaz (2018), and Zetzsche et al. (2018).

  7. The initial sample contains more than 2000 ICOs, although the full set of control variables is available only for a smaller subset of about 300 ICOs.

  8. See, for example, for a practice-oriented discussion.

  9. Importantly, note that I sample CEOs’ employment histories only from sources that are under the CEOs’ control. This guarantees that having information or not is by the CEOs’ choice, and not involuntarily, which would lead the selection correction logic ad absurdum. I thank one of the anonymous referees for pointing this out.

  10. To ensure the robustness of the results irrespective of whether I include inverse Mills ratios (IMRs) or not, I re-estimate all models without IMRs and report the CEO loyalty coefficients and the corresponding marginal effects in Table 12 in the Appendix.

  11. It is noteworthy that the dummy-variable regressions in columns 2 to 4 do not pick up any outlier effects. Winsorizing each tail by 1 or 2.5% does not materially change the parameter estimates for CEO loyalty, as I confirm in robustness checks.

  12. Note that even controlling for hard or soft caps, which are fundraising targets in ICOs, does not change the overall results. This finding from a robustness check is consistent with the results reported in Fisch (2019).

  13. Note that the econometrically more precise model specification would employ a random-effects time-to-event model (Momtaz 2020a). However, as Colombo et al. (2020) show, unobserved cluster-level heterogeneity at the industry or headquarter-country level is hardly existing in the international ICO context; therefore, my model specification used here produces robust results.

  14. Note, however, that the results are materially unchanged if inverse Mills ratios from the Heckman (1979) sample correction are omitted.

  15. In other words, I test whether CEO loyalty is a valid proxy for long-term agency costs.

  16. In this study, CEO loyalty is defined as the ratio between a CEO’s number of positions held previously and his or her cumulative overall professional experience in years.


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The author extend his thanks to Alexander Groh, the co-editor, two anonymous referees, Daniel Blaseg, Dmitri Boreiko, Lars Hornuf, Winifred Huang, and other seminar participants at the 6th Crowd investing Symposium on Blockchain and Initial Coin Offerings at the Max Planck Institute for Innovation and Competition for their helpful comments.


I acknowledge financial support for this research project from the Price Center for Entrepreneurship and Innovation at UCLA.

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Correspondence to Paul P. Momtaz.

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Table 12 Robustness checks: CEO loyalty coefficients without inverse Mills ratios
Table 13 Correlation matrix

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Momtaz, P.P. Initial coin offerings, asymmetric information, and loyal CEOs. Small Bus Econ 57, 975–997 (2021).

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  • Entrepreneurial finance
  • Initial coin offerings
  • Asymmetric information
  • Agency theory
  • CEO loyalty
  • Human capital

JEL classifications

  • G30
  • L26
  • M12
  • M13