Opportunity or opportunism? Blockchain technology adoption and corporate default risk

Main regression: blockchain’s effect on corporate default risk

Table 4 reports the regression results of the relationship between blockchain technology adoption and corporate default risk. The results show that the coefficient of blockchain technology is 0.004 and significant at the 1% level, indicating that companies that adopt blockchain technology significantly increase their default risk than companies without the technology. It is consistent with the Managerial Opportunism Hypothesis. It indicates that managers have incentives to strategically use blockchain technology to hype the market. The capital market’s “hype” toward blockchain adoption is evident.

In control variables, the coefficients of Size and Lev are significant and positive, indicating that the companies with higher debt ratios and larger sizes have a higher probability of default than other firms (Kong et al., 2020). The coefficients of ROA, Growth, and Hold1 are significant and negative, indicating that highly profitable and growth companies obtain more trade credit than other firms (Chen and Ma, 2018). The coefficient SOE is also significant and positive, indicating that state-owned enterprises with higher bargaining power lead to more defaults than other enterprises.

Mechanism: the effect of managerial self-interest motivation

Management’s shareholding redistributes shareholder interests, reducing existing shareholders’ wealth. If the shareholding ratio exceeds a reasonable limit, it can lead to excessive management compensation (Brown and Lee, 2010). Additionally, managerial shareholding may increase the management’s incentive to manipulate earnings and information (Cheng and Warfield, 2005; Brockman et al., 2010).

In theoretical analysis, we posit that the management, driven by self-interest, may utilize blockchain technology to pursue personal gains. For instance, executives might intentionally exaggerate the information regarding the effectiveness of blockchain applications to secure resources or manipulate market value. Due to information asymmetry, such manipulation of information is likely to influence market reactions, thereby achieving an increase in stock prices (Bloomfield, 2002), from which the management can derive personal benefits.

We proxy managerial ownership as executives’ self-interest. Management’s shareholding redistributes shareholder interests, reducing existing shareholders’ wealth. If the shareholding ratio exceeds a reasonable level, it can lead to excessive management compensation (Brown and Lee, 2010). Moreover, managerial shareholding can increase the desire to manipulate earnings and information (Brockman et al., 2010).

We included several variables to proxy the managerial self-interest. First, we included Change as the changes in the management’s shareholding during the year (Zhang and Kyaw, 2017). If the shareholding changed, it was recorded as 1; otherwise, it was recorded as 0. In order to further investigate the different types of shareholding changes, we also subdivided the changes in the management’s shareholdings into the following: the management’s shareholding reduced (Sell) during the inspection period, in which case, the management’s shareholding reduction was recorded as 1; otherwise, it was recorded as 0. If the management’s shareholding increased (Buy), the increase in the shareholding of the management during the above inspection period was recorded as 1; otherwise, it was recorded as 0.

In Column 1 of Table 5, the coefficient of the interaction Change*Blockchain is 0.008, at a 5% significance level. In Column 2, the interaction term Sell*Blockchain is 0.008, at the 1% significance level. In Column 3, the results are insignificant in Buy*Blockchain. The results indicate that managers could obtain benefits by changing their shareholding, especially in selling shares for profit, rather than buying.

Previous research only focused on the different ways of self-interested behavior related to blockchain technology adoption. Griffins and Shams (2020) found that purchases with Tether could lead significant increases in the price of Bitcoin. Similar results are found in Mt.Gox Bitcoin exchange theft (Gandal et al., 2018). Our research used to buy and sell activities to demonstrate the managerial self-interested behavior. The results show that managers are more likely to profit by selling rather than buying stocks.

Mechanism: the effect of power consolidation

A critical prerequisite for the logical analysis is that when executive power is relatively concentrated, executives are more likely to utilize their consolidated power to weaken the supervisory role of the board of directors (Finkelstein and D’aveni, 1994). This allows them to exaggerate or manipulate the disclosure and application of the company’s blockchain technology to achieve greater personal gains. Existing research has found that the dual role of chairman and CEO is a significant indicator of concentrated executive power. A CEO who also serves as chairman can use this power to manipulate board decisions to serve their own interests (Tuggle et al., 2010), upwardly adjust the company’s earnings (Davidson et al., 2004) and ultimately undermine the company’s value (Castañer and Kavadis, 2013). It arises when a CEO also serves as board chair, which can limit the board’s ability to discipline and harm the organization (Duru and Zampelli, 2016; Desai et al., 2003). When a company’s CEO also serves as chairman of the board, directors have conflicting goals. According to organizational theory (Finkelstein and D’aveni, 1994), this duality of the CEO establishes strong, clear leadership. However, according to agency theory, duality reduces the effectiveness of board monitoring, thus promoting the consolidation of the CEO’s position. Therefore, when the chairman also serves as CEO, due to his relatively concentrated power, it is more likely to strengthen the self-interested motives of executives, making the negative relationship between blockchain technology and corporate defaults more significant.

On the other hand, a good internal control environment helps to constrain the power of executives, so that the company has a better information environment (Jin and Myers, 2006), and can also reduce the information asymmetry between enterprises and investors, thereby constraining the self-interested behavior of executives (Hutton et al., 2009). On the contrary, if the internal control environment of the company is poor, it will not be able to effectively constrain the self-interested behavior of executives, making executives more likely to take self-interested actions, making the company more likely to default. Therefore, when the company’s internal control is poor, the constraints on the power of executives are weaker, making it more likely that executives will have a higher risk of default due to self-interested motives.

We used Internal Control and CEO dual responsibility as the proxy for CEO power consolidation. Internal control was measured by whether to issue the conclusion of the internal control evaluation report: if yes, the value was recorded as 0; otherwise, it was recorded as 1. Dual represents the chairman and the general manager concurrently in one person. The value is 1 if it is true, and 0 otherwise.

In Table 6 Column 1, we use CEO duality as a proxy for power consolidation. We define if CEO is appointed as a member of the board of directors at the same time, the power of the CEO will be consolidated. The results show that the coefficient of the interaction term Dual*Blockchain is 0.009, at the significance level of 10%. The results indicate that the default risk is higher in a firm with duality.

Similar results are shown in Table 6, column 2: we find that the interaction term Internal Control*Blockchain is 0.039, at a significance level of 1%, while the interaction term Dual*Blockchain is 0.009, at a significance level of 10%. The results indicate that the relationship is more pronounced in firms in which the CEO’s power consolidation is high.

The results are consistent with the research of Yermack (2017). This paper shows that CEO power consolidation could exist in firms with lower costs, greater liquidity, more accurate record-keeping, and transparency of ownership. Our results demonstrate that CEO power concentration could distort the transparency of the power and reduce the accuracy of the record-keeping. The default risk increases after a firm adopts blockchain technology.