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Corporate Venture Capital as an Exploratory Mechanism

Posted: 1 Oct 2008 Last revised: 8 Feb 2010

Gautam Rangan

affiliation not provided to SSRN

Daniel Robeson

Siena College; Rensselaer Polytechnic Institute; The Sage Colleges

Date Written: August 1, 2008

Abstract

This study analyzes the conditions under which Corporate Venture Capital (CVC) investments create growth options for the large firm. Using a real options perspective, the study hypothesizes that number of CVC investments is positively correlated to the number of growth options generated for the large firm. It is also hypothesized that the value generated from the CVC investments is higher when the CVC is undertaken through a dedicated subsidiary, when the CVC sponsoring firm has a high R&D intensity and when firms pursue international CVC investments. Results on a 8 year panel study comprising of 490 CVC investments undertaken between 1994 and 2002 suggest that number of CVC investments is positively correlated to the growth options generated for the large firm. The value generated from the CVC investments was also seen to be higher when the firms had a high R&D intensity. However, contrary to the hypothesis, the results suggested that CVC's undertaken through dedicated subsidiaries create lower value when compared to CVC's undertaken by groups which are a part of the larger corporation. Finally, implications for theory and practice are suggested.

Keywords: Corporate Venture Capital, Real Options, Growth Options

Suggested Citation

Rangan, Gautam and Robeson, Daniel, Corporate Venture Capital as an Exploratory Mechanism (August 1, 2008). Available at SSRN: https://ssrn.com/abstract=1275922 or http://dx.doi.org/10.2139/ssrn.1275922

Gautam Kasthurirangan (Contact Author)

affiliation not provided to SSRN

Daniel Robeson

Siena College ( email )

Siena Hall 301
515 Loudon Road
Loudonville, NY 12211-1462
United States

Rensselaer Polytechnic Institute ( email )

Troy, NY 12180
United States
(518) 330-4051 (Phone)

The Sage Colleges ( email )

140 New Scotland Avenue
Albany, NY 12208
United States
518 292-8657 (Phone)

HOME PAGE: http://www.sage.edu/academics/management

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