Corporate Venture Capital, Value Creation, and Innovation

Thomas Chemmanur, Elena Loutskina and Xuan Tian

Review of Financial Studies, 2014, vol. 27, issue 8, 2434-2473

Abstract: We analyze how corporate venture capital (CVC) differs from independent venture capital (IVC) in nurturing innovation in entrepreneurial firms. We find that CVC-backed firms are more innovative, as measured by their patenting outcome, although they are younger, riskier, and less profitable than IVC-backed firms. Our baseline results continue to hold in a propensity score matching analysis of IPO firms and a difference-in-differences analysis of the universe of VC-backed entrepreneurial firms. We present evidence consistent with two possible underlying mechanisms: CVC's greater industry knowledge due to the technological fit between their parent firms and entrepreneurial firms and CVC's greater tolerance for failure.

Date: 2014
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