Situated signaling: How signaling environment moderates the effects of quality signals on fundraising success of initial coin offerings

Management, and especially entrepreneurship, research usually assumes that the effects of quality signals are robust across different information environments. Indeed, theoretically and commonly assumed, investors should tend to rely more strongly on quality signals as cues to make decisions in a more complex and noisy information environment. However, in a real-world and cognitively demanding environment, the potential of quality signals to resolve information asymmetries may dissipate, because available quality signals might simply not be recognized. In this study, we inspect the indirect effects of the signaling environment on the relationship between quality signals and the outcomes of fundraising efforts of entrepreneurial ventures using the market of Initial Coin Offerings (ICOs) as empirical setting. We postulate that two dimensions of signaling environment (i.e., higher information amount and information variation) result in less favorable funding outcomes for entrepreneurial ventures because these dimensions increase cognitive costs for investors, presumably resulting in choice overload, and finally making investors hesitate to provide funding. A unique sample of 1,104 ICO projects provides support for our hypotheses.