Abstract

http://ssrn.com/abstract=2340900
 


 



The Effects of Corporate Venture Capital, Founder Incumbency, and Their Interaction on Entrepreneurial Firms’ R&D Investment Strategies


Yongwook Paik


Olin Business School, Washington University in St. Louis

Heejin Woo


California State University Fullerton

September 21, 2016


Abstract:     
Corporate venture capital (CVC) investment has increasingly become an important source of entrepreneurial finance. Accordingly, while scholars have traditionally focused on understanding the main motivations behind CVC activity and its impact on the investing corporate firm, more recently, scholars have also started to emphasize the importance of understanding the impact of CVC investment on the investee venture. In particular, these recent studies commonly show that CVC investment has a positive effect on the venture’s innovation. While the positive link between CVC investment and the venture’s innovation output is well established in the literature, the organizational mechanisms through which this relationship unfolds within the venture remain relatively underexplored. In this study, we fill this gap in the literature by examining the effects of CVC ownership, founder incumbency, and the CVC-founder interaction on R&D investment strategies in VC-financed, technology-based entrepreneurial ventures. In doing so, we aim to provide a novel explanation of the organizational mechanisms that lead to greater investment in R&D, especially with regard to the interaction between CVC investors and founder managers. We argue that CVC ownership and founder incumbency positively affect entrepreneurial firms’ R&D investment and, more importantly, that the CVC ownership effect is effectively amplified when the founder is an incumbent top manager because of goal congruence and knowledge spillover from the CVC firm. Our empirical analysis supports our hypotheses while addressing potential endogeneity concerns.

Number of Pages in PDF File: 43

Keywords: corporate venture capital, founder, R&D investment, knowledge spillover, entrepreneurship

JEL Classification: L26, M13, O3, M2, G3, D22


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Date posted: October 16, 2013 ; Last revised: September 29, 2016

Suggested Citation

Paik, Yongwook and Woo, Heejin, The Effects of Corporate Venture Capital, Founder Incumbency, and Their Interaction on Entrepreneurial Firms’ R&D Investment Strategies (September 21, 2016). Available at SSRN: http://ssrn.com/abstract=2340900 or http://dx.doi.org/10.2139/ssrn.2340900

Contact Information

Yongwook Paik (Contact Author)
Olin Business School, Washington University in St. Louis ( email )
1 Brookings Drive
Campus Box 1156
St. Louis, MO Missouri 63130
United States

Heejin Woo
California State University Fullerton ( email )
United States
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