An Integration of the Resource Based View and Real Options Theory for Investments in Outside Opportunities

37 Pages Posted: 25 Jan 2010

See all articles by Nalin Kulatilaka

Nalin Kulatilaka

Boston University - Department of Finance & Economics

Laura Toschi

University of Bologna - Department of Management

Date Written: May 2, 2009

Abstract

There is a growing trend by established firms to use a multitude of External Corporate Venturing (ECV) mechanisms (alliances, partnerships, joint ventures, acquisitions, licensing agreements and investments in corporate venture capital) to acquire external innovations. In this paper, we develop a framework within which firms choose ECV mechanisms that are best aligned with characteristics of the target company. More precisely, we investigate the effect of relatedness and uncertainty on governance mode choices by combining the Resource-based View of the firm and Real Options Theory. We propose a bi-dimensional matrix to show under which conditions of relatedness and uncertainty corporations choose among corporate venture capital, strategic alliance, joint venture and acquisition. Finally, we present a dynamic perspective to assess how these different forms of ECV transit over time, once part of uncertainty is resolved and a certain level of familiarity with the new knowledge is achieved.

Keywords: External Corporate Venturing, Strategic Real Options, Resource-based View

Suggested Citation

Kulatilaka, Nalin and Toschi, Laura, An Integration of the Resource Based View and Real Options Theory for Investments in Outside Opportunities (May 2, 2009). Available at SSRN: https://ssrn.com/abstract=1541865 or http://dx.doi.org/10.2139/ssrn.1541865

Nalin Kulatilaka

Boston University - Department of Finance & Economics ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-353-4603 (Phone)
617-353-6667 (Fax)

Laura Toschi (Contact Author)

University of Bologna - Department of Management ( email )

Via Capo di Lucca, 34
40126 Bologna
Italy
00390512090214 (Phone)

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