Post by Thomas J Chemmanur on Jun 27, 2011 5:51:23 GMT 4
Corporate Venture Capital, Value Creation, and Innovation
Thomas J. Chemmanur
Boston College - Carroll School of Management
Elena Loutskina
Darden School of Business, University of Virginia
Xuan Tian
Indiana University - Kelley School of Business
May 1, 2011
Abstract:
We analyze how corporate venture capitalists (CVCs) create value for entrepreneurial firms and how value-creation by CVCs differs from that of independent venture capitalists (IVCs). Making use of a large data set consisting of a sample of CVC- and IVC-backed firms and the NBER Patent Citation database, we find that there are two ways in which CVCs uniquely create value for entrepreneurial firms. First, CVCs help create product market value by investing significant amounts in younger, more R&D intensive, but less profitable firms. Further, CVCs help their portfolio firms achieve a higher degree of innovation productivity compared to IVCs’ portfolio firms, as measured by their patenting. CVCs better nurture innovation through the strategic fit between their parent companies and the portfolio firms and their tolerance for failure. Second, CVCs help create financial market value by playing a certification role that effectively communicates the true value of firms backed by them to the IPO market: they accomplish this by attracting larger participation by various reputable financial market players such as underwriters, institutional investors, and analysts. We also show that the signal conveyed by CVCs to the financial markets is informative, in the sense that CVC-backed IPO firms enjoy higher post-IPO stock returns compared to IVC-backed firms.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1844696_code464869.pdf?abstractid=1364213&mirid=2
Thomas J. Chemmanur
Boston College - Carroll School of Management
Elena Loutskina
Darden School of Business, University of Virginia
Xuan Tian
Indiana University - Kelley School of Business
May 1, 2011
Abstract:
We analyze how corporate venture capitalists (CVCs) create value for entrepreneurial firms and how value-creation by CVCs differs from that of independent venture capitalists (IVCs). Making use of a large data set consisting of a sample of CVC- and IVC-backed firms and the NBER Patent Citation database, we find that there are two ways in which CVCs uniquely create value for entrepreneurial firms. First, CVCs help create product market value by investing significant amounts in younger, more R&D intensive, but less profitable firms. Further, CVCs help their portfolio firms achieve a higher degree of innovation productivity compared to IVCs’ portfolio firms, as measured by their patenting. CVCs better nurture innovation through the strategic fit between their parent companies and the portfolio firms and their tolerance for failure. Second, CVCs help create financial market value by playing a certification role that effectively communicates the true value of firms backed by them to the IPO market: they accomplish this by attracting larger participation by various reputable financial market players such as underwriters, institutional investors, and analysts. We also show that the signal conveyed by CVCs to the financial markets is informative, in the sense that CVC-backed IPO firms enjoy higher post-IPO stock returns compared to IVC-backed firms.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1844696_code464869.pdf?abstractid=1364213&mirid=2