Initial Coin Offerings: Financing Growth with Cryptocurrency Token Sales
with Sabrina Howell and David Yermack
Forthcoming at Review of Financial Studies
Initial coin offerings (ICOs) are sales of blockchain-based digital tokens associated with specific platforms or assets. Since 2014 ICOs have emerged as a new financing instrument, with some parallels to IPOs, venture capital, and pre-sale crowdfunding. We examine the relationship between issuer characteristics and measures of success, with a focus on liquidity, using 453 ICOs that collectively raise $5.7 billion. We also employ propriety transaction data in a case study of Filecoin, one of the most successful ICOs. We find that liquidity and trading volume are higher when issuers offer voluntary disclosure, credibly commit to the project, and signal quality.
Fake News: Evidence from Financial Markets
with Shimon Kogan and Tobias J. Moskowitz
While social media platforms, blogs, and other unmonitored media outlets are becoming a main source of news for many, they also offer scope for providing misleading or false information. We use two unique datasets and a linguistic algorithm developed to detect deception in expression, to examine the impact of fake news in financial markets. The first dataset is a set of paid-for articles obtained from an SEC investigation that are known to be false, that allow us to validate the linguistic algorithm. The second dataset applies the linguistic algorithm to quantify the probability of an article being fake on a much larger set of articles. We find a strong temporary price impact and subsequent reversals from the fake news articles for small firms, permanent negative price impact for mid-size firms, and no impact for large firms. In addition, for small and mid-size firms we find that around the release of fake articles, managers are more likely to issue press releases, file 8-K forms with the SEC, and buy stock in their own firm, hinting that such firms are possibly engaging in stock price manipulation. No such patterns are found for large firms.
Strategic Disclosure Timing and Insider Trading
Revision requested at Management Science
I provide evidence that managers strategically manipulate their company’s information environment to extract private benefits. Exploiting an SEC requirement that managers disclose certain material corporate events within five business days, I show that managers systematically disclose negative events when investors are more distracted, causing returns to under-react for approximately three weeks. Strategic disclosure tim- ing is concentrated among smaller firms with high retail-investor ownership and low analyst coverage. Furthermore, I use the fact that most insider sales are scheduled in advance to demonstrate that top managers are more than twice as likely to strategically time disclosures if the return under-reaction benefits their insider sales. Finally, I find that firms that systematically disclose negative news on Fridays have higher levels of earnings management.
Bad News Bearers: The Negative Tilt of Financial Press
with Eric C. So
We show the financial press is more likely to cover firms with deteriorating performance. Specifically, we find the media is more likely to cover firms’ earnings announcements if they convey poor operating performance, suggesting the media tilts its selection process toward negative news. We estimate the size of the tilt in media coverage and find that, controlling for the content of news, a news story is approximately 15-to-22 percent more likely to be covered if it is negative. Similarly, we show greater media coverage during the quarter foreshadows declines in firms’ profitability and negative earnings surprises reported at the end of the quarter. Greater media coverage also negatively forecasts both firm- and industry-level future returns, suggesting that media coverage conveys novel negative information. Given the important role financial media plays in capital markets, a central contribution of this paper is in showing that the media tilts its selection process toward negative news.