Abstract
This study investigates the influence of voluntary, unverifiable disclosures on investors’ decisions and their risk perception. We focus on Initial Coin Offerings (ICOs), in which start-ups and projects raise funds by issuing their own crypto tokens. Based on voluntary, unverifiable disclosure provided in whitepapers, ICOs have raised $23 billion by the end of 2018. Using a hand-collected sample of 558 ICOs, we find that more whitepaper disclosure increases the share of professional funds in an ICO’s funding volume and the likelihood of professional investors participating in an ICO, while it decreases token underpricing. Further analyses indicate that particularly the disclosure of team and financial characteristics influences professional investor participation and token underpricing. We also document that the threat of regulation increases the amount of disclosure provided by ICO projects.
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