Regulation, information asymmetries and the funding of new ventures

Matteo Aquilina, Giulio Cornelli and Marina Sanchez del Villar

No 1162, BIS Working Papers from Bank for International Settlements

Abstract: Can regulation ease problems of asymmetric information for young and innovative firms? The new and largely unregulated cryptocurrency ecosystem offers a unique setting to test this hypothesis. We construct a comprehensive measure of regulatory stringency at the state-month level for the United States and find that more stringent regulation is conducive to more private capital, but only in states with a more developed financial sector. Looking at granular deal-level data we trace the increase in access to capital triggered by a more stringent regulatory environment to a reduction in information asymmetries. Consistently with a reduction in information asymmetry, we find that younger firms with less tangible assets benefit more, and foreign investors, investors that are not specialised in the crypto sector and those with fewer investment professionals invest more capital.

Keywords: corporate finance; venture capital; asymmetric information; cryptocurrency (search for similar items in EconPapers)
JEL-codes: D82 G24 G28 O1 (search for similar items in EconPapers)
Date: 2024-01
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-fdg, nep-ifn and nep-reg
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