Corporate Venture Capital as a Window on New Technologies: Implications for the Performance of Corporate Investors When Acquiring Startups

David Benson () and Rosemarie H. Ziedonis ()
Additional contact information
David Benson: Marriott School of Management, Brigham Young University, Provo, Utah 84602
Rosemarie H. Ziedonis: Stephen M. Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109

Organization Science, 2009, vol. 20, issue 2, 329-351

Abstract: Gaining a “window” on new technologies is a prominent motive for corporate venture capital (CVC) investing. Recent studies suggest that information gained through CVC-related activities can improve the internal R&D productivity of established firms. This study investigates an alternative means by which information gained through CVC investing could improve firm performance---by increasing the returns to corporate investors when acquiring startups. We provide new insights based on an event study of the returns to 34 corporate investors from acquiring 242 technology startups. Consistent with predictions drawn from the absorptive capacity literature, we find that the effect of CVC investing on acquisition performance hinges critically on the strength of the acquirer's internal knowledge base: as CVC investments increase relative to an acquirer's total R&D expenditures, acquisition performance improves at a diminishing rate. We also find that firms consistently engaged in venture financing earn greater returns when acquiring startups than do firms with more sporadic patterns of investing, even controlling for firm profitability, size, and acquisition experience. These findings suggest that corporate investors systematically differ in their abilities to derive added benefits from external venturing as acquirers of entrepreneurial firms.

Keywords: acquisitions; startups; innovation strategy; absorptive capacity (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (80)

Downloads: (external link)
http://dx.doi.org/10.1287/orsc.1080.0386 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:20:y:2009:i:2:p:329-351

Access Statistics for this article

More articles in Organization Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().