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The Life Cycle of Corporate Venture Capital

95 Pages Posted: 17 Nov 2015 Last revised: 15 Sep 2016

Song Ma

Yale School of Management

Date Written: September 14, 2016

Abstract

This paper studies the economics of financing innovation through establishing the life cycle of Corporate Venture Capital (CVC). Using an identification strategy that isolates firm-specific innovation shocks, I find that the CVC life cycle typically follows a period of deteriorated internal innovation and when external information is valuable, lending support to the hypothesis that firms use CVC to acquire innovation knowledge from startups. This information acquisition rationale is further supported at the operation and termination stage of the CVC life cycle -- CVCs select portfolio companies with similar technological focus but that have a different knowledge base, actively use newly acquired information, and change their human capital to facilitate information acquisition; CVC programs are terminated when the informational benefit diminishes.

Keywords: Corporate Venture Capital, Information Acquisition, Innovation, Entrepreneurship

JEL Classification: G24, G34, O32, D83

Suggested Citation

Ma, Song, The Life Cycle of Corporate Venture Capital (September 14, 2016). Available at SSRN: https://ssrn.com/abstract=2691210 or http://dx.doi.org/10.2139/ssrn.2691210

Song Ma (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
P.O. Box 208200
New Haven, CT 06511
United States

HOME PAGE: http://faculty.som.yale.edu/songma/

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