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The Economic Value of Blockchain Applications: Early Evidence from Asset-Backed Securities

Author

Listed:
  • Xia Chen

    (Singapore Management University, Singapore 178900)

  • Qiang Cheng

    (Singapore Management University, Singapore 178900)

  • Ting Luo

    (Tsinghua University, Beijing, 100084, People’s Republic of China)

Abstract

In this paper, we evaluate the economic value of a blockchain application. In the context of asset-backed securities (ABS) issuance in China, where some ABS are issued with blockchain technology and others are not, we find that the use of blockchain significantly reduces the coupon yield at issuance. Compared with other ABS, those issued using blockchain technology experience a decrease of 31.4 basis points in the yield spread, which corresponds to a relative decrease of 13%. We further document that the effect of blockchain is more pronounced for ABS deals rated by less reputable credit rating agencies and agencies that rely more on issuers for their rating business, for revolving ABS, and for ABS with a larger number of underlying assets. We also find that the use of blockchain can reduce the level of retained interest and number of credit enhancement mechanisms. This paper contributes to the literature by providing a small-sample analysis of the economic value of a blockchain application in financial markets.

Suggested Citation

  • Xia Chen & Qiang Cheng & Ting Luo, 2024. "The Economic Value of Blockchain Applications: Early Evidence from Asset-Backed Securities," Management Science, INFORMS, vol. 70(1), pages 439-463, January.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:1:p:439-463
    DOI: 10.1287/mnsc.2023.4671
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