The Differential Impact of Corporate Blockchain-Development as Conditioned by Sentiment and Financial Desperation

Abstract

This paper investigates whether companies that initiated blockchain-development as a primary short-term corporate strategy, exhibited abnormal corporate performance as conditioned by financial performance, leverage, social media sentiment and previous experience of technological development. Results indicate that investors were subjected to a very sophisticated form of asymmetric information designed to propel sentiment and market euphoria. Technological-development firms are found to financially behave in a profoundly different fashion to speculative firms with no background in ICT technology, who experience an estimated, increased one-year probability of default of 170bps. Information shrouding is found to be of particular regulatory concern. Rating agencies are found to have under-priced the risk on-boarded by these speculative firms as they announced their entry into the blockchain sector, failing to identify that such firms should be placed under an increased degree of scrutiny. Sophisticated digital platforms, regulatory unpreparedness and mis-pricing by trusted market observers has resulted in a situation where investors and lenders have been placed in a compromised position with direct exposure to a financial asset class becoming known for criminal activity, financial losses and frequent reputational damage.