Hitting the Right Note: The Impact of Lexical Complexity on Initial Coin Offering Success

This paper builds on credible signaling theory and proposes a novel approach to financial textual analysis by introducing lexical complexity (LC) as an informative signal of future venture performance. LC is measured by the sophistication, density, and diversity of vocabulary in a text and distinguishes itself from the widely used construct of readability. Analyzing 1202 ICO white papers from 2015 to 2021, we find that higher LC positively influences the amount raised during ICOs, above and beyond the effect of white paper readability. This effect is amplified for more readable white papers. We also investigate the underlying mechanisms behind these results, suggesting that LC enhances perceptions of innovation and quality, attracts greater attention from institutional investors, and reduces information asymmetry. Our findings contribute to the entrepreneurial finance literature by highlighting how managers’ linguistic choices, particularly the use of LC, can significantly improve disclosure quality and influence investor behavior.