Corporate Venture Capital as an Exploratory Mechanism
affiliation not provided to SSRN
The Sage Colleges; Rensselaer Polytechnic Institute
August 1, 2008
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
Date posted: October 1, 2008 ; Last revised: February 8, 2010