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Study Reveals Blockchain Adoption Increases Corporate Default Risk
Main Regression: Impact of Blockchain on Corporate Default Risk
New research findings suggest that companies incorporating blockchain technology may experience a significant increase in default risk compared to those without this technology. The study, focusing on the Managerial Opportunism Hypothesis, indicates that managers could be strategically using blockchain to hype the market, leading to higher default risks. The analysis highlights a noticeable hype in the capital market surrounding blockchain adoption.
The study’s regression analysis also reveals that factors such as company size, debt ratio, profitability, growth, and state ownership play crucial roles in determining default probabilities. Larger firms with higher debt ratios and state-owned enterprises are more susceptible to defaults, while profitable and growing companies tend to obtain more trade credit, further influencing default rates.
Mechanism: Managerial Self-Interest Motivation
Managerial shareholding can impact shareholder wealth, potentially leading to excessive management compensation and a higher likelihood of earnings manipulation. The study posits that management, driven by self-interest, may exploit blockchain technology for personal gains. Executives might exaggerate blockchain’s effectiveness to influence market value, thereby boosting stock prices for personal benefit. The analysis reveals that managerial self-interest, demonstrated through shareholding changes, significantly impacts the relationship between blockchain adoption and default risk.
Mechanism: Power Consolidation Effects
Concentrated executive power, often seen in CEOs also serving as board chairs, can diminish board oversight, leading to information manipulation for personal gains. The study indicates that firms with greater CEO power consolidation exhibit higher default risks post-blockchain adoption. Additionally, internal control quality plays a vital role in curbing executive self-interested actions. Companies with poor internal controls are more susceptible to default risks, emphasizing the importance of governance structures in mitigating default probabilities in the context of blockchain implementation.