Amsterdam Business School, U. of Amsterdam, Netherlands
In hyped markets, entrepreneurs can leverage language-based signals to jumpstart their ventures. Our study adds to this growing body of research by exploring how investors attend to linguistic cues in initial coin offering (ICO) prospectuses during the ICO hype. Departing from earlier studies, this study argues that hype is a signaling environment that incentivizes entrepreneurs to be opportunistic in their use of language-based signals. To test our hypotheses, we draw on a sample of 812 ICOs. Our results suggest that investors favor linguistic complexity over simplicity and that emotional language affects the persuasiveness of prospectuses. Controlling for ICO, market, and venture characteristics, we find that more money was raised when prospectuses positively violated investors’ language expectations and evoked emotions. Our findings imply a risk of moral hazard in hyped technology markets: hype incentivizes entrepreneurs to use investors’ emotions and expectations opportunistically if they wish to raise more money in the short term.