Journal Article

Corporate Venture Capital, Value Creation, and Innovation

Thomas J. Chemmanur, Elena Loutskina and Xuan Tian

in The Review of Financial Studies

Published on behalf of The Society for Financial Studies

Volume 27, issue 8, pages 2434-2473
Published in print August 2014 | ISSN: 0893-9454
Published online May 2014 | e-ISSN: 1465-7368 | DOI: https://dx.doi.org/10.1093/rfs/hhu033
Corporate Venture Capital, Value Creation, and Innovation

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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.

Keywords: G24; G23; O31

Journal Article.  18114 words.  Illustrated.

Subjects: Investment Banking ; Financial Institutions and Services ; Technological Change; Research and Development

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