Investment decisions under uncertainty: corporate venture capital as a real option

Décisions d’investissement en cas d’incertitude: le capital-risque d’entreprise comme option réelle

Fatima Shuwaikh (), Mathew Hughes, Souad Brinette and Sabrina Khemiri ()
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Fatima Shuwaikh: PULV - Pôle Universitaire Léonard de Vinci, IRG - Institut de Recherche en Gestion - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12 - Université Gustave Eiffel
Mathew Hughes: University of Leicester
Souad Brinette: EDC - EDC Paris Business School, OCRE - Observatoire et Centre de Recherche en Entrepreneuriat - EDC - EDC Paris Business School
Sabrina Khemiri: LITEM - Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay - IMT-BS - Institut Mines-Télécom Business School - IMT - Institut Mines-Télécom [Paris], IMT-BS - DEFI - Département Droit, Économie et Finances - TEM - Télécom Ecole de Management - IMT - Institut Mines-Télécom [Paris] - IMT-BS - Institut Mines-Télécom Business School - IMT - Institut Mines-Télécom [Paris]

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Abstract: This paper aims to assess the role of corporate venture capital (CVC) as option-creating investments and how corporate investors practice CVC options in their investment decisions. Using a sample of 4206 US firms between 1998 and 2019, our results show that sector fit and geographic fit reduce uncertainty and impact investors' decisions on CVC investments. When exogenous uncertainty is mitigated, CVC-backed companies experience higher investment amounts than independent venture capital funds (IVC)-backed ones. The results evidence that follow-on investments motivate IVC-backed companies to exit via IPOs. At the same time, a prolonged duration for the organisational learning option leads CVC-backed companies to exit via acquisition. This study helps investors to reduce uncertainty surrounding investments and improve the usefulness of their real options. We also provide implications for how policymakers target and develop an entrepreneurial ecosystem.

Keywords: Corporate venture capital; Funds; Geographic fit; Investment decisions; Real options; Sector fit; Uncertainty; Sustainable Development Goals (search for similar items in EconPapers)
Date: 2024-04
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Published in International Journal of Finance and Economics, 2024, 29 (2), pp.2452-2471. ⟨10.1002/ijfe.2794⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03980111

DOI: 10.1002/ijfe.2794

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