Source: www-management.wharton.upenn.edu
Topic: Investment Firm
Sort Desciption: venture capital investment to firm value is greater when firms explicitly .... CVC investment impacts firm valuation and whether this relationship is driven ...
Content Inside: When Does Corporate Venture Capital Investment Create Firm Value? Gary Dushnitsky The Wharton School University of Pennsylvania 2031 Steinberg Hall – Dietrich Hall Philadelphia, PA 19104 Tel: (215) 898-6386 Fax: (215) 898-0401 gdushnit@wharton.upenn.edu Michael J. Lenox Fuqua School of Business Duke University PO Box 90210 Durham, NC 27708 Tel: (919) 660-8025 Fax: (919) 681-6244 mlenox@duke.edu Draft: July 21 st , 2004 Working Paper. Please do not quote or cite without authors’ permission. ¬ 2004 G. Dushnitsky & M. Lenox 1 When Does Corporate Venture Capital Investment Create Firm Value? Abstract Over the past decade, billions of dollars have been invested by establish companies in entrepreneurial ventures -- what is often referred to as corporate venture capital. Yet, there is little systematic evidence whether corporate venture capital investment creates value to investing firms. Scholars have suggested that established firms face underlying challenges when investing corporate venture capital. Namely, structural deficiencies inherent in corporate venture capital may inhibit financial gains. However, firm value may still be created as a result of other benefits from investing -- primarily providing a window onto novel technology. In this paper, we propose that corporate venture capital investment will create greater firm value when firms explicitly pursue corporate venture capital to harness novel technology. Using a panel of CVC investment, we present evidence consistent with our proposition. The findings are robust to various specifications and remain unchanged even after controlling for unobserved heterogeneity in investing firms. Our results have important implications for corporate venture capital, in particular, and technology strategy, in general. Keywords: corporate venture capital, innovation, Tobin’s’ q Short Title: Corporate Venture Capital & Value Creation 2 Executive Summary Over the past decade, billions of dollar ...
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