Information asymmetry in initial coin offerings (ICOs): Investigating the effects of multiple channel signals

An initial coin offering (ICO) provides a new entrepreneurial finance approach for highly innovative blockchain ventures. However, the information asymmetry and adverse selection is severe in the ICO market. In this study, we focus on signals released in multiple channels in different ICO stages to investigate the relations between signal processing and information asymmetry. Referring to the multiple-channel communication theory, we characterize signal sources by their information schema, source credibility, and communication direction. Empirical results indicate that in the crowd sale stage, high credible and easy-interpretable signals have significant influences on token sales. In the listing stage, low credible and easy-interpretable signals have significant effects on token trading. High credible and hard-interpretable signals, which deliver project fundamental information, lose their functions in both stages, causing information asymmetry in ICOs. We also find that investor comments on social media, which is a multiple-way communication channel, play the role of information surveillance for ventures' voluntary disclosures. Those findings provide insights for signal processing and asset pricing in the ICO market to reduce information asymmetry and have significant practical implications.