Research on Cryptocurrency Disclosures and Accounting(1/3)

This proposal includes two research projects about cryptocurrencies in accounting. The first research project aims to answer the question of whether crypotocurrency-related disclosures in SEC filings are value-relevant and which topic of these disclosures provides more value-relevant information to investors. As new technology and its applications have been changing business models and more and more firms engage in cryptocurrencies in various ways, they disclose different information about cryptocurrencies. The disclosure contents vary from general description about cryptocurrencies, firms' engagement in cryptocurrencies, to risks of cryptocurrency engagement. Therefore, it is important to explore the contents of cryptocurrency-related disclosures and whether they provide value relevant information to investors. To answer this question, I plan to collect SEC 10-K and 10-Q filings that have cryptocurrency-related disclosures and adopt one of the topic analysis modeling, latent Dirichlet allocation (LDA), to identify the topics or themes of these cryptocurrency-related disclosures. After categorizing these disclosures into different topics, I plan to examine the association between these disclosures and firm value. The second research question focuses on accounting for cryptocurrencies. Specifically, I plan to examine which accounting approach provides more relevant information to investors, considering different purposes of holding cryptocurrencies. This research question is important and has policy implications because (1) the characteristics of cryptocurrencies do not correspond to current definitions of all assets, (2) U.S. GAAP and IFRS do not provide specific guidance for crypotocurreny accounting at this stage, and (3) the suitable accounting for cryptocurrencies may depend on the purpose of firms' holding cryptocurrencies. Therefore, I plan to hand collect crypotucrrency-related items from financial statements, identify the asset classification and accounting from their disclosures for each firms holding crypotucrencies, and use a value relevance model to examine which accounting approach provides more relevant information about crypotocurrency value for investors. Furthermore, I plan to manually identify the purpose of firms' holding cryptocurrencies from their SEC filings, and examine whether the previous results differ under different purposes.