Corporate Venture Capital as an Ex-Ante Evaluation Mechanism in the Market for Technology

Abstract:     
Why do firms make corporate venture capital (CVC) investments? To address this question, we provide a theoretical framework that suggests that CVC investments can be used as an ex-ante evaluation mechanism in the markets for technologies, thereby helping corporate investors effectively search for and select future acquisition or licensing partners. We capture this timing issue associated with CVC investments, acquisition, and licensing in both our theoretical and empirical analyses. Using a dataset on the internal and external R&D activities of 48 global pharmaceutical firms between 1985 and 2007, we find that absorptive capacity, internal productivity, and technological diversity impact the firms’ decisions on CVC investments, acquisition, and licensing.

Number of Pages in PDF File: 38

Keywords: corporate venture capital, market for technology, R&D, absorptive capacity, internal productivity, technological diversity

JEL Classification: G34, L24, L65, O32

working papers series