The Role of 'Expert Reviewers' in Private Capital Markets

We study initial coin offerings (ICOs) to understand how an unregulated market overcomes information frictions and conflicts of interest. Listing platforms both independently assess an offering and crowdsource information from "expert" reviewers. These experts provide more balanced textual reviews as they gain experience and receive positive feedback from the community, consistent with a reputation effect. We find that proceeds are higher when reviews are more positive even after controlling for both the reviewer's and platform's numerical rating. Finally, experts with greater potential conflicts of interest are more positive than other reviewers, but investors identify these conflicts and discount their reviews.

Keywords: Private Markets, Information Asymmetry, Capital Raising, ICO, FinTech

JEL Classification: D82, G14, G20

Suggested Citation: Suggested Citation

Aggarwal, Reena and Hanley, Kathleen Weiss and Zhao, Xiaofei, The Role of 'Expert Reviewers' in Private Capital Markets (October 20, 2020). Georgetown McDonough School of Business Research Paper No. 3715643, European Corporate Governance Institute – Finance Working Paper 739/2021, Available at SSRN: https://ssrn.com/abstract=3715643 or http://dx.doi.org/10.2139/ssrn.3715643