Code-Washing: Evidence from Open-Source Blockchain Startups

By: Ofir Gefen, Daniel Rabetti, Yannan Sun and Che Zhang

Format:Print
| Language:English
| Pages:58

Abstract

This study examines startups' management of source code repositories, distinguishing authentic developers ("code-producers''), from those inflating activity to mislead investors ("code-washers''). Using global blockchain startup and GitHub data, we find that code-producers and code-washers achieve greater fundraising success during hot markets than startups without repositories, indicating that investors struggle to evaluate open-source innovation accurately. However, while code-washers experience poorer outcomes post-fundraising, a portfolio of code-producers generates substantial long-term returns. Our study introduces the novel phenomenon of "code-washing,'' offering insights into how early ventures navigate (or exploit) information asymmetries during the fundraising phase.