Less is more: Institutional investors and Corporate Venture Capital
46 Pages Posted: 12 Sep 2018 Last revised: 3 Aug 2023
Date Written: September 2, 2020
This paper shows that an increase in the institutional ownership of a firm leads to cut of its corporate venture capital (CVC) investment, especially among investments that that are unrelated to the firms’ core businesses and are of low quality, and when firms have poor track record on CVC investment. The effect is more pronounced for firms with more severe managerial agency problems. To establish causality, we exploit plausibly exogenous variation in institutional investors around Russell 1000/2000 index reconstitutions. Our findings suggest a previously under-explored dark side of CVC programs, which gets mitigated under improved institutional monitoring.
Keywords: Corporate venture capital, institutional investors, agency problem, firm value
JEL Classification: G24, G23, G30
Suggested Citation: Suggested Citation