Corporate Venture Capital as a Real Option in the Markets for Technology
Scheller College of Business, Georgia Tech
Matthew John Higgins
Georgia Institute of Technology - Scheller College of Business; National Bureau of Economic Research (NBER)
Hyunsung Daniel Kang
Adelphi University - School of Business
June 28, 2011
Despite the fact that one of the main goals of corporate venture capital (CVC) investments in high-tech industries is to gain a window on future technologies, the relationship between CVC investments and other common strategies used to acquire existing technologies, such as licensing, has not been fully explored. To address this gap, we build on the real option literature suggesting that CVC investments can be used as real options in the markets for technology. Accordingly, we formulate hypotheses about key drivers of the option value of CVC investments and the decision to exercise the option. Using a longitudinal dataset on the external R&D activities of 598 dyads of global pharmaceutical firms and their technology partners, we find that corporate investors’ scientific capabilities, technological domains, research pipelines, and the resolution of exogenous uncertainty related to partner firms’ technologies impact investors’ decisions on CVC investments and ex post technology acquisition. In our research setting, the most common way to exercise the option post-CVC investment is via technology licensing.
Number of Pages in PDF File: 42
Keywords: corporate venture capital, market for technology, R&D, scientific capability, product pipeline, technological distance
JEL Classification: G34, L24, L65, O32
Date posted: June 28, 2011 ; Last revised: June 13, 2014
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