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: We examine the effects of regulation and the motives that underpin it. The development of the crypto sector offers a unique setting due to the absence of incumbents, the lack of pre-existing rules and the fact that governments regulated the sector holistically. We construct a comprehensive measure of regulatory activity at the state-month level for the United States based on state laws affecting the crypto sector and find that both consumers' and entrepreneurs' pressure drives regulation, in line with theories of economic regulation. We also find a positive association between regulation and venture capital funding in financial hubs. A detailed analysis of New York's BitLicense sheds light on the mechanism: regulation reduced information asymmetries, enhancing funding for startups. Overall, our results highlight the complex motives behind regulation, which can address genuine market failures even when driven by the interest of competing groups.

Keywords: regulation; corporate finance; venture capital; asymmetric information; cryptocurrency (search for similar items in EconPapers)
JEL-codes: D82 G24 G28 L51 O16 (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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