*2.1. Corporate Governance*

One of the first definitions widely accepted of corporate governance is offered by the Cadbury (1992), where corporate governance is defined as "the system by which companies are directed and controlled". Several adaptations of this first definition have been used later by academics in corporate governance research (du Plessis et al. 2005; Monks and Minow 1995). The agency cost theories of corporate governance state that the primary goal of good governance of firms is to protect shareholders and other stakeholders from managerial discretion. The separation between ownership, control and divergent interests of different stakeholders make it necessary to adopt governance mechanisms to align stakeholders' interests (Aguilera and Cuervo-Cazurra 2009). There are multiple corporate governance mechanisms recognized by research, both internal and external (Fama and Jensen 1983; Jensen 1993). These mechanisms attempt to reduce agency costs and guarantee an efficient decision-making process that maximizes the firm's wealth (Ahlering and Deakin 2007). Amongst the internal mechanisms, the most relevant ones seem to be the shareholders' ownership structure, the board of directors and the role of compensation of directors and managers.

In addition, transaction cost theory, first initiated in Coase's (1937) paper and later theoretically described by Williamson (1996), is an interdisciplinary alliance of law, economics and organizations. This theory defines the firm as an organization consisting of people with different views and objectives. The underlying assumption of transaction theory is that firms have become so large that they in effect substitute for the market in determining the allocation of resources. In other words, the organization and structure of a firm can determine prices and production. An alternative theory in corporate governance, which is the stewardship theory, has its roots in psychology and sociology and is defined by Davis and Thompson (1994). According to this theory, stewards are company executives and managers working towards protecting and creating wealth for the shareholders. Unlike agency theory, stewardship theory stresses not the perspective of individualism, but rather the role of top management as stewards, integrating their goals as part of the organization. Another theory in corporate governance is resource dependency theory. While stakeholder theory focuses on relationships with many groups for individual benefits, resource dependency theory concentrates on the role of board directors in providing access to resources needed by the firm. Hillman et al. (2000) contend that resource dependency theory

focuses on the role that directors play in providing or securing essential resources to an organization through their links with the external environment.

Finally, political theory considers the approach of developing voting support from shareholders by purchasing voting power. Hence, having political influence may direct corporate governance within the organization. Public interest is much reserved as the government participates in corporate decision-making, taking into consideration cultural challenges. The objective of this study's literature review is not to discuss the entire literature on corporate governance but to identify certain theories that may be affected by blockchain adoption in the corporate governance sphere. In Section 6, our framework and several key Tables link these theories to blockchain adoption in corporate governance.

#### *2.2. Blockchain and Corporate Governance*

The article mostly related to our study is Yermack (2017). Yermack (2017) states that blockchain adoption in corporate governance would result in greater liquidity, lower costs, accurate record-keeping and transparent ownership. As mentioned in the introduction section, our paper significantly differs from Yermack (2017) and prior literature by developing an adoption framework, conducting a systematic review of a large sample of articles, differentiating between academic and industry literature and identifying gaps and trends, and finally linking prior traditional corporate governance theories to blockchain adoption. Catalini and Gans (2016) assert that integrations of multiple ledgers of banks via blockchain would speed up processes and reduce costs. However, Cong and He (2019) find that smart contracts can lead to increased collusive behaviour among participants. Several studies explore payment system applications for blockchains (Yamada et al. 2016) based on alternate ledger designs (Badertscher et al. 2017) and smart contracts (Atzei et al. 2017). Abadi and Brunnermeier (2018) question blockchains' ability to remain cost-effective, decentralized and accurate all at once. Houy (2014) finds that transaction fees, which are the prices paid to trade a security, are directly linked to computing power of miners. Aoyagi and Adachi (2018) develop a theoretical framework to explain cryptocurrency prices based on blockchains under asymmetric information. Kim (2017) find Bitcoin transaction costs to be 2% lower relative to standard conversion rates on average. Easley et al. (2017) test transaction fee evolution by implementing a game-theoretic model and explain users' and miners' strategic behaviour. Jayasuriya and Sims (2019) explore the effects of blockchain applications in accounting and find numerous applications including triple-entry accounting, reduced earnings management, real-time auditing.

A key differentiation to be made between blockchain-based and non-blockchain-based firms is the use of cryptocurrencies or crypto tokens. These tokens may impact operational, financing and strategic aspects of firm decision making (Rohr and Wright 2017; Chen 2018; Howell et al. 2018; Liu and Wang 2019a). Entrepreneurship-based crypto tokens enable stakeholder coordination with network externalities in a single ecosystem (Li and Mann 2018; Bakos and Halaburda 2018; Sockin and Xiong 2020). Cong et al. (2020) state that blockchain features such as immutability, transparency and wealth-sharing incentivize developers, early adopters and entrepreneurs to this particular technology. Li and Mann (2018) find that as the quality of the platform improves, it attracts more users and further drives up the value of the tokens, creating positive network effects.

We identify prior literature related to ICOs. However, the objective of this study is not to review ICO literature extensively but to identify aspects relevant for corporate governance and blockchains, as detailed in the results and discussion section. ICOs are a new financing mechanism for blockchain-based ventures, especially at the early stage of development (Ante et al. 2018; Kaal and Dell'Erba 2017; Zetzsche et al. 2018; An et al. 2019; Momtaz 2019a). Chod and Lyandres (2018) state that ICOs facilitate fundraising without having to relinquish control rights by the founders. Kaal and Dell'Erba (2017) compare ICOs with initial public offerings (IPOs) and state that ICOs have significantly lower issuer fees due to the non-involvement of intermediaries such as banks. Conley (2017) and Catalini and Gans (2018) state that ICOs create more demand for tokens and increased competition among token buyers and subsequently reveal consumer value. Chemla and Tinn (2017) identify similarities of ICOs to

crowdfunding, where informed investment decisions are made through the wisdom of the crowds. Adhami et al. (2018) assert that ICO whitepapers and project-related details being widely available over the Internet will reduce information asymmetry and at the same time expose entrepreneurs to a wider range of investors. Lee and Parlour (2019) argue that ICOs provide a more liquid and secondary market for tokens listed on crypto exchanges relative to venture capital and private equity investments. However, several studies such as Collomb et al. (2018), Clements (2018) and Zetzsche et al. (2018), identify regulatory arbitrage and uncertainty around regulation as ICO disadvantages. Trimborn et al. (2018) find that majority of ICOs have a fixed token supply with a single round of financing which is required to increase token price with more demand. Liu and Wang (2019b) review prior literature on ICO token construction and valuation.

Literature that analyses ICO success include (Adhami et al. 2018; Blaseg 2018; Deng et al. 2018; Feng et al. 2018; Fisch 2018; Howell et al. 2018; Rhue 2018; Zetzsche et al. 2018; Bourveau et al. 2019 and Dean et al. 2019). Several studies focus on the quality of the management team and ICO advisors as signals of project quality and success potential (Amsden and Schweizer 2018, Lyandres et al. 2019, Bourveau et al. 2019). An et al. (2019) and Howell et al. (2018) highlight the significance of the enterpreneurs' experience, and Momtaz (2020a) and Momtaz (2019c) find CEO emotion and loyalty as being significant for ICO outcomes. Another strand of ICO literature finds significant underpricing in ICOs relative to IPOs (Adhami et al. 2018; Momtaz 2018; Bourveau et al. 2019; Ofir and Sadeh 2019). Benedetti and Kostovetsky (2018) and Momtaz (2019b) state that tokens are under-priced to attract a wider investor base and to overcome information asymmetry issues related to ICOs. Furthermore, studies such as Benedetti and Kostovetsky (2018); Momtaz (2018); Felix and Eije (2019); Drobetz et al. (2019) and Lyandres et al. (2019) focus on ICO under-pricing determinants and identify investor sentiment and first-day returns as being significant for long term ICO return prediction.

#### *2.3. Legal and Governance Aspects of Blockchains and Applications*

Blockchain-based firms would be a novel institution type which may require new economic analysis and governance mechanisms. Thus, several studies highlight the importance of government oversight on blockchain adoption (Davidson et al. 2016; Yeoh 2017). Other studies identify problems with ICO bans and explore optimal ICO regulation (Robinson 2017; Barsan 2017; Chohan 2017; Kaal and Dell'Erba 2017; Li and Mann 2018; Zetzsche et al. 2018). According to Kaal and Vermeulen (2017), 25 countries are considering comprehensive cryptocurrency regulation. Such regulation is key to prevent money laundering and black-market operations (Brenig et al. 2015; Abramowicz 2016; Hardy and Norgaard 2016; Humphries and Smith 2018; Foley et al. 2019). Piazza (2017) discusses blockchain adoption in corporate governance purely from a regulatory perspective. The author surmises that due to uncertainty in regulation, Bitcoin and blockchain adoption in ownership reporting and accounting is not prudent. However, Piazza (2017) does support the adoption of blockchain as a corporate voting tool. Brainard (2016) discuss various cryptocurrency regulation and courses of action. Furthermore, another strand of studies highlights the importance of regulation coordinated within society (Atzori 2015; Hughes and Middlebrook 2015; Mills et al. 2016; Robinson 2017; Nabilou and Prum 2019). Harwick (2016) discusses cryptocurrency-related, economic barriers, legal, technical, intermediation, governance factors and solutions.

Evans (2014) analyses present cryptocurrency platforms and alternatives and highlight the need for adequate governance. Tasca (2015) provides a case for country-level governance with regard to cryptocurrencies and payment systems related to financial intermediaries. Bagby et al. (2018) propose expanded jurisdiction on cryptocurrency regulatory initiatives. Luther(2016) states a lack of government support and regulation as a key barrier for cryptocurrency prevalence and success. Barsan (2017) and Pilkington (2018) discuss ICOs in general and advocate for stringent regulation to avoid hacking similar to the decentralised autonomous organisation (DAO) hack. Zetzsche et al. (2018) provide legal recommendations that would mitigate participation risks in ICOs to investors. Kim et al. (2018) explore the cryptocurrency regulatory landscape and develop a framework for cryptocurrency valuation. Blockchain-based regulation also involves regulation of equity crowdfunding. Zhu and Zhou (2016) explore Chinese equity crowdfunding platforms and provide blockchains as a viable solution resulting in low-cost, efficient, secure platforms requiring regulatory oversight. The next section provides a detailed description of our research design.

#### **3. Research Design**

This section firstly explains the research design for the systematic review and textual analysis and secondly provides the research design for the empirical analysis. The systematic survey and textual analysis enable us to identify the key diverse factors to be included in our framework. Our framework provides an overall picture of the many parties involved, theories from prior literature, market forces and the role of blockchain governance factors as it relates to blockchain adoption in corporate governance. Next, we hand-collect blockchain-related investment data globally and forecast future investments, deal counts and correlations among different geographic regions.
