GUZMÁN,PINTO,TRUJILLO - Signaling Value through Gender Diversity

sustainability Article Signaling Value through Gender Diversity: Evidence from Initial Coin Offerings Alexander Guzmán 1 , Cristian Pinto-Gutiérrez 2, and María-Andrea Trujillo 1 /gid00030/gid00035/gid00032/gid00030/gid00038/gid00001/gid00033/gid00042/gid00045/gid00001 /gid00048/gid00043/gid00031/gid00028/gid00047/gid00032/gid00046

Citation: Guzmán, A.;

Pinto-Gutiérrez, C.; Trujillo, M.-A. Signaling Value through Gender

Diversity: Evidence from Initial Coin Offerings. Sustainability 2021, 13, 700.

https://doi.org/10.3390/su13020700

Received: 7 December 2020

Accepted: 10 January 2021

Published: 13 January 2021

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Copyright: © 2021 by the authors. Licensee MDPI, Basel, Switzerland.

This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). 1 CESA School of Business, Bogotá 110311, Colombia; alexander.guzman@cesa.edu.co (A.G.); maria.trujillo@cesa.edu.co (M.-A.T.) 2 Centro de Investigación y Estudios Contables, Faculty of Business and Economics, Universidad de Talca, Talca 3460000, Chile Correspondence: cristian.pinto@utalca.cl; Tel.: +56-71-220-0200

Abstract: We analyze women’s participation and the effects of team gender diversity on initial coin offering (ICO) success measured by the total funding amount raised in the actual ICO and the project’s long-term survival. Using a database featuring 875 initial coin offerings between 2017 and 2019, we find that women are significantly under-represented in ICO projects (on average, only 13% of team members are women). However, for projects that do have participation of women, we find that team gender diversity increases the total funding raised in the ICO. Moreover, when we separate team members into areas of expertise or roles in the project, we find that the presence of women in critical positions, such as being a founder or having financial or legal responsibilities, significantly reduces the likelihood of long-term coin failure. Our results are consistent with the notion that investors perceive women’s participation in leadership positions as a positive signal of desirable organizational practices that will translate into better performance. Our results are also consistent with the idea that having women, who abide by ethical values and are less prone to fraud, reduces the likelihood that informationally opaque ICOs turn out to be scams.

Keywords: gender diversity; initial coin offerings; blockchain; entrepreneurship

1. Introduction The United Nations has proposed 17 sustainable development goals to achieve by 2030, including gender equality, sustainable economic growth, and innovation and technological progress. These goals underline the importance of identifying opportunities for progress and promoting the development of individuals to ensure sustainability [1]. One of these opportunities is in Science, Technology, Engineering, and Mathematics (STEM) disciplines, relevant for sustainable development due to their potential for innovation and disruption.

However, evidence shows that women are significantly unrepresented in STEM careers. As a consequence, lack of gender diversity is one of the main problems technology companies

face today [2], and disruptive new technologies, such as cryptocurrency and blockchain, are highly male-dominated sectors. The gender gap in leadership positions in the technology sector is also severe. For instance, Adams and Kirchmaier (2016) [3] find that board gender diversity is significantly lower for firms in the STEM industries than in the non-STEM sectors. These trends have remained even after empirical evidence has shown that having women in teams improves the decision-making process and assesses a firm’s strategic alternatives, stimulates better debates, provides a broader spectrum of strategic options, and fosters collaboration and innovation [4–8]. Increasing the number of women studying and working in STEM fields is, therefore, fundamental towards achieving better solutions to the global challenges [9,10]. Furthermore, improving access to external funding for womenled ventures in disruptive technologies is critical for achieving sustainable economic development. Sustainability 2021, 13, 700. https://doi.org/10.3390/su13020700 https://www.mdpi.com/journal/sustainabilitySustainability 2021, 13, 700 2 of 19 In this article, we examine the effect that team gender diversity can play in financing entrepreneurial efforts using an Initial Coin Offering (ICO), a new financing instrument designed to raise money by issuing coins or tokens based on smart contracts built on distributed ledger technology (DLT or blockchain) (e.g., [11–19]). In an ICO, entrepreneurial firms create a cryptocurrency and sell it to external investors to raise the funds needed to develop their projects. According to ICOBench.com, one of the most popular rating websites for ICOs, over 5700 ICOs raised more than USD 27 billion between 2017 and 2019

(retrieved from https://icobench.com/on 1 June 2020). This figure represents about 9% of the value of venture capital investments in the U.S. during the same period (data on venture capital investment in the U.S. is from the PwC/CB Insights MoneyTree™ Report Q4 2019), which highlights the relevance of ICOs as a source of entrepreneurial finance. ICOs involve several challenges for both entrepreneurs and investors subscribing to the offerings. In particular, regulatory uncertainty around ICOs and the absence of supervision of such offerings expose both issuers and participants to significant risks [20]. For instance, there is no law on the enforceability of smart contracts or the recourse of investors in case of a loss due to a technological failure of the distributed network. In addition to the severe information asymmetries already present in entrepreneurial companies, characterized by the nonexistence of prior financial information or a performance track record, the lack of disclosure requirements in ICOs impede proper risk assessment of the investment by potential investors [20]. Moreover, there are no specialized intermediaries in the ICO market, such as venture capital firms, to perform appropriate financial due diligence before investing or managing and overseeing the companies investors fund. These uncertainties and information gaps force investors to consider factors that could signal the quality of the ICO issuers. In particular, investors want to understand the crucial determinants that predict company success and the factors indicating a lower probability of an entrepreneur’s opportunistic behavior after receiving financing. Consequently, a growing financial literature has examined the factors determining ICO success. Possible explanations range from information disclosure levels to the commitment of the CEO and the participation of large institutional investors [21–30]. An unexplored aspect that could impact an ICO’s success is the participation of women

and the level of team gender diversity in an ICO project. ICOs are at the intersection of technology and finance, two sectors with already high gender inequalities. Moreover, most ICO projects are innovative blockchain-based start-ups offering smart contract solutions that require teams’ members trained in STEM related disciplines. However, several studies indicate that STEM careers are a male-dominated sector (i.e., [31–33]). This is why cryptocurrency and blockchain technology remains a highly male-dominated industry. For instance, a report by the World Economic Forum (WEF) showed that only 5% to 7% of all cryptocurrency users around the world are women [34]. Considering that gender diversity has been proved to increase the potential for innovation [2,5], increasing diversity in teams should be a key issue for blockchain technology companies involved in ICOs. Furthermore, earlier literature in finance and management has demonstrated the positive impact of having women in leadership positions on a firm’s performance [35–39], corporate social responsibility [40,41], corporate fraud [42–45], and innovation [4,5,46,47]. Women also seem to be less prone to overconfidence while being less risk-seeking [48,49] and abiding by ethical values and regulations [50–52], thereby reducing corporate fraud [53–55]. All these positive aspects of gender diversification have made investors take note and put a higher value on firms that have women participating in top management positions, especially in contexts where asymmetric information and adverse selection problems are prevalent. For instance, Welbourne, Cycyota, and Ferrante (2007) [56] showed that women in critical positions are associated with higher first-day returns in initial public offerings (IPOs). The authors argued that team gender diversity is used by investors as a signal of the quality of IPO firms and symbolizes desirable organizational characteristics that increase the likelihood of success.Sustainability 2021, 13, 700 3 of 19

In this paper, we analyze the effects of women’s participation and team gender diversity in the ICO market, an opaque, unregulated sector of entrepreneurial finance filled with informational gaps and fraud. Using a database featuring 875 initial coins offerings between 2017 and 2019, we show that gender team diversity is positively associated with ICO success measured by the total funding amount raised. This result is consistent with the notion that investors perceive women’s participation in ICO teams as a positive signal of necessary organizational practices that result in higher performance. Exploring further elements of team gender diversity, we find that when we separate team members into areas of expertise or roles played in the project, the presence of women in critical positions, such as a founding member or having financial or legal responsibilities, significantly reduces the likelihood of long-term coin failure. In contrast, we do not find that women’s positions have a significant effect on the total funding amount raised in the ICO. Overall, our results indicate that some of the underlying mechanisms in ICOs resemble those found in prior research into corporate and entrepreneurial finance such as IPOs [56] and crowdfunding [57], which is another important entrepreneurial finance market segment for the future [16]. More importantly, our results enable investors and entrepreneurial firms to understand another crucial determinant of ICO success more accurately. In particular, we provide novel evidence for the factors that reduce the uncertainty that investors face when investing in unregulated ICOs and document a previously unknown benefit of women’s roles in entrepreneurial companies. Our study has implications for financial practices, in particular for cryptocurrency investors and entrepreneurial firms conducting ICOs. Participants in the ICO market should be aware of the value of team gender diversity for the entrepreneurial firms facilitating the raising of funds, mitigating risk, and improving the quality and long-term survival rate of

the projects.

2. Literature Review and Hypotheses Development A growing financial literature has examined the factors determining the success of and motivations for investing in ICOs. The theoretical underpinnings for most empirical papers examining the overall success of ICOs are motivated by agency-related and moral hazardbased explanations of ICO market outcomes. Consequently, papers typically focus on information disclosure and signaling for ICO success. For instance, Fisch (2019) [11] studied the role of signaling ventures’ technological capabilities in ICOs and found that technical white papers and high-quality source codes increase the amount raised by the offering.

Roosenboom, van der Kolk, and de Jong (2020) [ 58] also found evidence that ICOs are more successful in raising funding when they disclose more information to investors. They showed that ICOs raise significantly more funds when they have a higher quality rating from cryptocurrency experts, organize a presale, refrain from offering bonus schemes, have shorter planned token sale durations, and have a larger project team. Roosenboom et al. (2020) [58] also showed that ICOs that disclose more information to investors at the time of the campaign show a higher likelihood of the coin being listed in major cryptocurrency exchanges. Finally, Howell et al. (2020) [13] examined which issuer and ICO characteristics predict successful real outcomes (increasing issuer employment and avoiding enterprise failure). The authors found that disclosure, credible commitment to the project, quality signals, and token liquidity cause higher future utilization. Some papers have shown that the quality of the CEO and the presence of large institutional investors also determine the success of the ICO. For instance, Momtaz (2020) [59] showed that signals of entrepreneurial quality such as CEO loyalty are positively associated with ICO gross proceeds and other measures of ICO success. Boreiko and Risteski

(2020) [60] showed that ICOs that attract large investors raise more funds, attract more contributors, and are more likely to list tokens on major crypto exchange. Meanwhile, Fisch and Momtaz (2020) [17] found that the participation of institutional investors in an ICO is positively associated with the buy-and-hold abnormal returns over the first six months of trading after the token’s exchange listing date. A number of articles have alsoSustainability 2021, 13, 700 4 of 19 examined the underpricing of ICOs (similar to IPOs studies). For instance, Benedetti and Kostovetsky (2021) [61] found evidence of a significant ICO underpricing, with average returns of 179% from the ICO price to the first day’s opening market price. After trading begins, tokens continue to appreciate in price, generating average buy-and-hold abnormal returns of 48% in the first 30 trading days. However, Momtaz (2019) [ 62] found that the average ICO underpricing only amounts to 15%, and 4 out of 10 ICOs destroy value on the first trading day. For holding periods between one and twenty-four months, the median ICO depreciates by 30%. Consequently, there are substantial discrepancies among papers examining the underpricing of ICOs. A relevant and unexplored signaling aspect that could impact an ICO’s success is the participation of women and the level of team gender diversity in an ICO project. We expect that investors perceive women’s participation in leadership positions as a positive signal of the quality, expected performance, and desirable organizational practices of the ICO firms. This expectation comes from previous empirical research showing the positive impact of having women in leadership positions on firm performance [35–37], corporate social responsibility [40], corporate fraud [42,43], and innovation [4,5,46,47].

Women’s participation in leadership positions has also proved to be valuable in the context of severe information asymmetries. For instance, Welbourne et al. (2007) [ 56] showed a positive relationship between having women on top management teams of initial public offering (IPO) firms and the initial pricing of the offering and subsequent long-term performances. The authors argue that the reasons for women’s positive effects on the initial pricing are associated with the signaling implications that having a diverse gender mix sends to the market about positive organizational characteristics that are critical to firms’ success. Meanwhile, the authors attributed the superior long-term performance to the positive effects of women on improving innovation and problem-solving processes, and the possibility that on average the women on diverse teams are higher performers than men on those same teams. As in the case of IPO firms, among the main challenges for entrepreneurial firms undertaking an ICO and the investors subscribing to the offering are the extensive information asymmetries and adverse selection problems in ICO firms [ 63]. We believe that the signal of having a more gender diverse team could mitigate some of the information asymmetries present in the ICO market. We hypothesize that investors notice women on ICO projects and then take that information into consideration when deciding whether or not to invest in an ICO and the amount to be invested. Consequently, we expect ICOs with a higher participation of women to be more successful in raising funding. These arguments lead us to the following hypothesis: Hypothesis 1: Greater team gender diversity in ICO entrepreneurial firms is positively associated with the total funding raised in the ICO. The percentage of women in leadership positions could only be considered a signal to investors if it ultimately produces positive future performance. Thus, to understand the effects of gender diversity on the short-term success of an ICO, we also need to examine

its impact over the long term. Prior literature has shown that gender diversity leads to significant improvement in the decision-making process and better assessment of the firm’s contextual alternatives [8]. Women can also stimulate debate, manage complexity, provide a broader spectrum of strategic options, and foster collaboration and innovation [46]. All of these benefits, the prior literature shows, result in improved long-term firm performance. A high percentage of women in leadership positions can also improve monitoring activities and reduce the probability of corporate fraud. For instance, Adams and Ferreira (2019) [53] found that women show higher discipline in attending board meetings and that greater gender diversity makes CEO turnover more sensitive to poor firm performance. The literature also argues that women seem to more closely abide by ethical values and regulations [50–52], thus, leading to the positive effect of women reducing fraud [55,64]. For instance, the Association of Certified Fraud Examiners (ACFE) consistently shows sizeableSustainability 2021, 13, 700 5 of 19 differences between women and men in occupational fraud. In their last report, men committed 72% of all occupational fraud and also caused larger losses than women [65]. Prior research in psychology and economics has shown that men tend to be more risk-seeking than women [ 48] and documented gender differences in attitudes toward financial risks [49]. Literature also shows that women are less prone to overconfidence [66] and more likely to value security and take steps to avoid the worst possible outcomes [54]. These results are consistent with financial studies that examine investment decisions by traders [ 67], financing and investment policies by executives [ 68], and merger and acquisition decisions by boards of directors [69]. Moreover, Silverman (2003) [70] presents

experimental and survey evidence indicating that women are, on average, more patient and better able to delay gratification than men. This literature provides key insights to help explain the benefits of gender diversity in financial decision-making. Considering the uncertainties and information gaps in the ICO market that allow for the possibility of entrepreneurs’ opportunistic behavior after receiving financing, the previously discussed gender differences in ethics and risk-taking, together with the arguments about the benefits of having women in top management positions, are particularly valuable in the ICO context. In particular, we expect differences between women and men to become more relevant in positions that could directly impact fraud [54]. In other business context, Brouthers, Brouthers, and Werner (2000) [71] analyzed the impact of managerial experience on strategic aggressiveness and found that managers with accounting and finance backgrounds pursue more conservative strategies than managers with other managerial experience. In politics, Baskaran et al. (2018) [ 72] investigated competitive elections to India’s state assemblies and found that women legislators are less likely to be criminal and corrupt, more efficacious, and less vulnerable to political opportunism. Consequently, we hypothesize that women in leadership positions, such as CEO, founder, or financial and legal roles increases ICO legitimacy and positively impacts the likelihood of the long-term survival of the project. We posit the following hypothesis: Hypothesis 2: The presence of women in critical positions such as founder, CEO, and financial or legal responsibilities significantly reduces the likelihood of long-term coin failure.

3. Methods and Data 3.1. Methodology We use a multivariate setting to examine the impact of women’s participation and team gender diversity on ICO success. First, we regress the natural logarithm of total gross proceeds from the ICO on a set of variables measuring team gender diversity and control

variables using the following ordinary least squares (OLS) specification: Ln(ICO gross proceeds )i = α + β1 ∗Gender diversity i + β2 ∗Woman position i + γ′Xi +Ti + ϵi. (1) Our main dependent variable is Ln (ICO gross proceeds)i, which is the natural logarithm of total gross proceeds from the ICO in U.S. dollars. Depending on the regression model we use, the variable Gender diversity represents either the total number of female team members, the percentage of female team members, or the Blau index for gender diversity [73]. The variable Woman position represents women’s participation in critical roles (CEO, founder, financial, and legal). Given the frequency of women in marketing positions and the importance of developers and blockchain engineers for ICO projects, we also include marketing, development, and blockchain in this definition of critical roles. The vector Xi contains the control variables. First, we control for expert ratings of the ICO management team, its vision, and its product [59]. As there are no regulations on ICO structure, we control also for the use of the technical standard ERC20 that contains a list of rules for developers creating smart contracts on the Ethereum blockchain. WeSustainability 2021, 13, 700 6 of 19 also include a dummy for projects that accept payment in fiat currency. Prior literature has shown that more extended fundraising periods likely indicate the project is having trouble raising the desired amount, which is a negative signal to potential investors [14]. Therefore, we control for the ICO duration. We also control for pre-ICO offers and bonuses for early investors (pre-ICO bonus). These schemes could lower the fundraising amount because early adopters can buy tokens at a lower price before the ICO. Finally, the ICO phenomenon depends on the geographic distribution and location of the projects [74]. We

control for the number of countries excluded from the ICO and for whether the start-up is located in the U.S. Finally, we include year (Ti) fixed-effects in all regressions. We do not control for industry-fixed effects for different reasons. First, ICObench provides different industrial sectors for each project, making it difficult to have an accurate classification of the coin offerings by industry. In addition, investors should perceive ICOs as having similar industrial risk, due to the use of smart contracts built on distributed ledger technology to raise funds and the high average rate of failure in the ICOs. We also examine how women’s participation and gender diversity affect the likelihood that an ICO coin will ultimately die. Our dependent variable equals 1 if ICO i has a dead coin at the end of June 2020 and zero otherwise. We employ a logistic regression model with the following specification: Pr[Dead coin i = 1] = α + β1 ∗Gender diversity i + β2 ∗Woman position i + γ′Xi +Ti + ϵi, (2) where we define an ICO as having a dead coin if it meets any of the following conditions: (i) the token symbol or coin name appears listed in deadcoins.com (deadcoins.com is a community forum where contributors can post information about dead or dying coins. The website classifies dead coins into four categories: (a) failed projects, (b) hacked coins, (c) scams, and (d) parodies, (ii) the coin name appears listed in coinopcy.com (coinopcy.com is also a contribution-based forum, where contributors may receive a bounty of up to 0.1 ETH (Ethereum) if the site administrators verify the information. According to coinopcy.com, a dead coin refers to a cryptocurrency that has been abandoned, used as a

scam, had its website down, has no nodes, has wallet issues, does not have social updates, has low volume, or its developers have walked away from the project), and (iii) the token is not listed in CoinMarketCap as of June 2020 (since we used a sample of ICOs that ended on 31 December 2019, we allowed for a period of at least six months for ICOs to list their tokens. According to Momtaz (2020) [14], once a project has raised funds, it takes 93 days on average from the end of the ICO until the first token exchange listing). The variables Gender Diversity, Woman Position, and vectorXi are all defined as in Equation (1), except that we include one additional control variable for the natural logarithm of the ICO’s gross proceeds in U.S. dollars. We also include year-fixed (Ti) effects. 3.2. Data Our primary source of ICO data is ICObench, an ICO rating platform that provides a comprehensive list of coin offerings. ICObench provides the most thorough and highest quality information on ICO campaigns [58]. Moreover, due to its comprehensive coverage, ICObench has been used in several previous studies [ 14,17,58,59,74,75]. The first ICO appeared in 2013 (MasterCoin). However, ICOBench only includes ICO data starting from

2015. The few projects published in 2015 and 2016 have incomplete information concerning our key variables and controls, in particular, information regarding team members. For this reason, we restricted our sample to ICOs from 2017 to 2019. This sample period includes the two most active years (i.e., 2017 and 2018) in the ICO market both in terms of number of projects and funds raised. To measure coin failure, we collect data from deadcoins.com,

coinopcy.com, and CoinMarketCap. We start with a list of 4133 ICO-ended offers between January 2017 and December

2019. From this total, we identify almost 45 thousand people participating on these ICOSustainability 2021, 13, 700 7 of 19 teams. Tables 1 and 2 describe the main characteristics of ICO team members in terms of their gender and position in the company. Table 1 presents role and gender distributions across all ICOs. Descriptive statistics show that ICO teams on average are dominated by men with women’s participation at only 14%. This proportion is even lower when we consider critical positions such as founders (6%), CEOs (4%), developers (8%), and blockchain jobs (4%). We believe that this gender disparity in ICOs is only an extension of a trend that has existed for decades in technology industries caused by the shortage of women in STEM fields. Our data also shows that women are under-represented in ICOs top decision-making and STEM-related positions. These figures are consistent with prior studies documenting the low participation of woman in cryptocurrencies and blockchain industries (e.g., [76,77]).

Table 1. Number of people involved in ICOs by gender and critical positions. All Team Members Excluding Advisors Number % Number % Total people involved in ICOs 45,917 33,348 Women involved in ICOs 6451 14% 5362 16% Men involved in ICOs 39,466 86% 27,986 84% Total founders 4614 4614 Women founders 288 6% 288 6% Men founders 4326 94% 4326 94% Total CEOs 3001 3001 Women CEOs 134 4% 134 4% Men CEOs 2867 96% 2867 96%

Total of people in financial or legal positions 3462 2071 Women in financial or legal positions 637 18% 461 22% Men in financial or legal positions 2825 82% 1610 78% Total of people in marketing positions 2750 2157 Women in marketing positions 773 28% 693 32% Men in marketing positions 1977 72% 1464 68% Total of people in developer positions 7135 6702 Women in developer positions 582 8% 544 8% Men in developer positions 6553 92% 6158 92% Total of people in blockchain positions 2756 1751 Women in blockchain positions 124 4% 73 4% Men in blockchain positions 2632 96% 1678 96% Note: This table presents the number and percentage of people involved in ICOs, categorized by gender and critical positions, including and excluding advisors. The sample is comprised of 4133 initial coin offerings (ICOs) between 2017 and 2019. Table 2 shows the 15 most common words mentioned in the role descriptions for ICO team members, classified by gender and type of involvement (management team or advisor). In this table, we see the differences in roles filled by men and women. For instance, the most common positions for men include developer, CEO, and founder. While for women, some of the most common roles include marketing, designer, and community manager. Even more, consider the case of a CEO. The position appears at the top of the list for men, while it shows up at the bottom for women.Sustainability 2021, 13, 700 8 of 19 Table 2. The 15 most common words mentioned in role descriptions for ICO team members.

All Team Members Excluding Advisors Men Women Men Women Role % Role % Role % Role % Advisor 6.1% Manager 6.3% Developer 5.5% Manager 7.7% Developer 3.8% Marketing 4.4% CEO 3.2% Marketing 4.9% CEO 2.7% Advisor 3.4% Manager 3.1% Director 2.4% Blockchain 2.4% Director 2.0% Co-founder 2.9% Head 2.3% Co-founder 2.2% Head 1.9% Chief 2.5% Designer 2.2% Manager 2.2% Community 1.9% Blockchain 2.3% Community 2.2% Chief 1.9% Business 1.8% Founder 2.1% Developer 2.0% Founder 1.8% Designer 1.8% Officer 2.1% Business 1.9% Marketing 1.8% Developer 1.6% Engineer 2.0% Development 1.5% Director 1.6% Development 1.4% Marketing 2.0% PR 1.5% Development 1.5% PR 1.4% Director 1.9% Chief 1.5% Officer 1.5% Chief 1.3% Development 1.9% Officer 1.5% Engineer 1.4% O