Working Paper: NBER ID: w21802
Authors: David Yermack
Abstract: Blockchains represent a novel application of cryptography and information technology to ag-eold problems of financial record-keeping, and they may lead to far-reaching changes in corporate governance. Many major players in the financial industry have began to invest in this new technology, and stock exchanges have proposed using blockchains as a new method for trading corporate equities and tracking their ownership. This essay evaluates the potential implications of these changes for managers, institutional investors, small shareholders, auditors, and other parties involved in corporate governance. The lower cost, greater liquidity, more accurate record-keeping, and transparency of ownership offered by blockchains may significantly upend the balance of power among these cohorts.
Keywords: blockchain; corporate governance; transparency; liquidity; financial technology
JEL Codes: G20; G30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Adoption of blockchains (O36) | Enhanced transparency in ownership records (G38) |
| Enhanced transparency in ownership records (G38) | Reduced opportunities for rent-seeking behavior and corrupt practices among managers and regulators (G38) |
| Adoption of blockchains (O36) | Lower trading costs (F12) |
| Lower trading costs (F12) | Increased attractiveness of equity investments (G11) |
| Adoption of blockchains (O36) | Improved liquidity (G19) |
| Improved liquidity (G19) | Altered incentives for institutional investors and activists (G34) |
| Increased transparency (G38) | Reduction in insider trading and earnings management (G38) |