Choice Between IEO and ICO: Speed vs. Liquidity vs. Risk

Anton Miglo

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes a financing problem for an innovative firm that is considering launching a web-based platform. Our model is the first one that analyzes an entrepreneur's choice between initial exchange offering (IEO) and initial coin offering (ICO). Compared to ICO, under IEO the firm is subject to screening by an exchange that reduces the risk of investment in tokens; also the firm gets access to a larger set of potential investors; finally tokens become listed on an exchange faster. We argue that IEO is a better option for the firm if: 1) the investment size is relatively large; 2) the extent of moral hazard problems faced by the firm is relatively large; 3) the degree of investors' impatience is relatively small. We aslo find a non-linear relationship between firm quality and its financing choice. Most of these predictions are new and have not been tested sofar.

Keywords: FinTech; Entrepreneurial Finance; Initial Coin Offering; Initial Exchange Offering; Moral Hazard; Utility Tokens; Listing (search for similar items in EconPapers)
JEL-codes: D82 D84 G32 L11 L26 M13 O32 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-pay and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Choice between IEO and ICO: Speed vs. Liquidity vs. Risk (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:99600

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