Positive tone and initial coin offering

Shuyu Zhang, Walter Aerts, Dunli Zhang and Zishan Chen

Accounting and Finance, 2022, vol. 62, issue 2, 2237-2266

Abstract: An initial coin offering (ICO) has become a popular venue for crowdfunding at an early stage in a blockchain project. In the ICO process, a whitepaper may serve as an effective marketing tool to influence investor perception and investor trading behaviour. In this paper, we investigate whether management sentiment, as captured by the disclosure tone of the ICO whitepaper, is seen as a credible signal and capable of affecting price behaviour of the ICO on its first trading day. We document a positive association between management’s net positive tone in the whitepaper and ICO first‐day return, indicating that management sentiment has a significant impact on investor behaviour. Our findings show, however, that such association is contingent on the presence of causal argument, suggesting that disclosure tone needs a significant extent of causal reasoning support to back up its credibility and make it persuasive. These findings provide incremental evidence on the relationship between management tone and relative asset returns during an ICO process in the cryptocurrency markets. While management may benefit from soft information disclosure in the whitepaper, investors and regulators should be aware of self‐serving incentives in whitepaper disclosures.

Date: 2022
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