To what extent does signaling theory explain long-term post-ICO performance? An empirical research into the impact of quality signals including ownership retention rate, underpricing, rating and presale availability

Abstract

Initial Coin Offerings (ICO) have been studied through the lens of signaling theory from various perspectives, including factors influencing ICO success and short-term post-ICO performance. However, only a few researchers have examined how quality signals impact the long-term post-ICO performance. We investigate blockchain technology-based firms’ (BTBFs) long-term post-ICO performance in terms of buy-and-hold returns by assessing the impact of four signals: ownership retention rate, underpricing, ICO rating, and organization of presale, while controlling for factors that could bias our results. Among the four factors, our results suggest that ICO rating and the organization of a presale by a BTBF are positively related to the venture’s long-term aftermarket performance. However, the impacts of ownership retention rate and underpricing on ICO aftermarket performance are inconclusive. Nevertheless, the study lays the foundation for future research on long-term post-ICO performance and carries practical implications for both BTBFs and investors in using and interpreting signaling factors effectively.