Corporate Venture Capital and the Returns to Acquiring Portfolio Companies

Posted: 3 Sep 2010

See all articles by David F. Benson

David F. Benson

Brigham Young University

Rosemarie Ham Ziedonis

Boston University - Questrom School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 12, 2010

Abstract

A prominent motive for corporate venture capital (CVC) is the identification of entrepreneurial-firm acquisition opportunities. Consistent with this view, we find that one of every five startups purchased by 61 top corporate investors from 1987 through 2003 is a venture portfolio company of its acquirer. Surprisingly, our analysis reveals that takeovers of portfolio companies destroy significant value for shareholders of acquisitive CVC investors, even though these same investors are “good acquirers” of other entrepreneurial firms. We explore numerous explanations for these puzzling findings, which seem rooted in managerial overconfidence or agency problems at the program level.

Keywords: Corporate venture capital, acquisitions, overconfidence, governance, entrepreneurial finance

JEL Classification: G34, D82, L24

Suggested Citation

Benson, David F. and Ziedonis, Rosemarie Ham, Corporate Venture Capital and the Returns to Acquiring Portfolio Companies (August 12, 2010). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1658164

David F. Benson (Contact Author)

Brigham Young University ( email )

Provo, UT 84602
United States
801-422-8383 (Phone)

HOME PAGE: http://marriottschool.byu.edu/employee/employee.cfm?emp=dfb6

Rosemarie Ham Ziedonis

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

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