Template-Type: ReDIF-Paper 1.0
Author-Name: Matteo Aquilina
Author-X-Name-First: Matteo
Author-X-Name-Last: Aquilina
Author-Name: Giulio Cornelli
Author-X-Name-First: Giulio
Author-X-Name-Last: Cornelli
Author-Name: Marina Sanchez del Villar
Author-X-Name-First: Marina
Author-X-Name-Last: Sanchez del Villar
Title: Regulation, information asymmetries and the funding of new ventures
Abstract: We examine the effects of regulation and the motives that underpin it. The development of the crypto sector offers a unique setting due to the absence of incumbents, the lack of pre-existing rules and the fact that governments regulated the sector holistically. We construct a comprehensive measure of regulatory activity at the state-month level for the United States based on state laws affecting the crypto sector and find that both consumers' and entrepreneurs' pressure drives regulation, in line with theories of economic regulation. We also find a positive association between regulation and venture capital funding in financial hubs. A detailed analysis of New York's BitLicense sheds light on the mechanism: regulation reduced information asymmetries, enhancing funding for startups. Overall, our results highlight the complex motives behind regulation, which can address genuine market failures even when driven by the interest of competing groups.
Creation-Date: 2024-01
File-URL: https://www.bis.org/publ/work1162.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1162.htm
File-Format: text/html
Number: 1162
Keywords: regulation, corporate finance, venture capital, asymmetric information, cryptocurrency
Classification-JEL: D82, G24, G28, L51, O16
Handle: RePEc:bis:biswps:1162