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The Wisdom of Crowds in FinTech: Evidence from Initial Coin Offerings

Author

Listed:
  • Jongsub Lee
  • Tao Li
  • Donghwa Shin

Abstract

Certification by analysts on a FinTech platform that harnesses the “wisdom of crowds” is associated with successful initial coin offerings (ICOs). We show that favorable ratings by a group of analysts with diverse backgrounds positively predict fundraising success and long-run token performance. Analysts’ ratings also help detect potential fraud ex ante. We document that analysts have career concerns and are incentivized by the platform to issue informative ratings. Overall, our results suggest that a market-based certification process that relies on a diverse group of individuals is at play in financing blockchain startups. (JEL D82, G11, G24, G32, G34, L26).

Suggested Citation

  • Jongsub Lee & Tao Li & Donghwa Shin, 2022. "The Wisdom of Crowds in FinTech: Evidence from Initial Coin Offerings," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 11(1), pages 1-46.
    • Handle: RePEc:oup:rcorpf:v:11:y:2022:i:1:p:1-46.
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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