Endorsement Signals and Resource Attraction in New Markets: Lessons from the Emergence of ICOs

Past research shows that new firms can facilitate resource attraction by securing endorsements from prominent third parties. In new markets, however, it is often unclear which endorsers—and, therefore, which endorsement signals—are credible. We sought to understand how the effectiveness of various endorsement signals might change as new markets develop. To do so, we study the emergence of the global market for Initial Coin Offerings (ICOs), in which new firms raise money by selling “tokens”. Drawing on a sociocognitive approach to signaling, we propose that in the very early stages of a market, signal receivers rely on endorsement signals that resemble signals they know from other, more established markets. Over time, however, we expect that signal receivers will better assess signal credibility and focus more (less) on those signals for which they receive positive (negative) information. Our findings are generally consistent with these expectations; however, changes in signal effectiveness are especially pronounced for the endorsement signals of weakly-vetted third parties, whereas the signals of more strongly-vetted third parties exhibit stable, positive effects. Taken together, our findings shed light on signaling in new markets by showing how different signals may become more or less effective over time.