FREE ELECTRONIC LIBRARY - Dissertations, online materials

Pages:   || 2 | 3 | 4 | 5 |   ...   | 12 |

«John R. Graham, Co-Supervisor David T. Robinson, Co-Supervisor Manuel Adelino Alon P. Brav Manju Puri Aaron K. Chatterji Dissertation submitted in ...»

-- [ Page 1 ] --

The Life Cycle of Corporate Venture Capital


Song Ma

Department of Business Administration

Duke University



John R. Graham, Co-Supervisor

David T. Robinson, Co-Supervisor

Manuel Adelino

Alon P. Brav

Manju Puri

Aaron K. Chatterji

Dissertation submitted in partial fulfillment of the requirements for the degree of

Doctor of Philosophy in the Department of Business Administration

in the Graduate School of Duke University 2016 Abstract The Life Cycle of Corporate Venture Capital by Song Ma Department of Business Administration Duke University



John R. Graham, Co-Supervisor David T. Robinson, Co-Supervisor Manuel Adelino Alon P. Brav Manju Puri Aaron K. Chatterji An


of a dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the Department of Business Administration in the Graduate School of Duke University 2016 Copyright c 2016 by Song Ma All rights reserved except the rights granted by the Creative Commons Attribution-Noncommercial Licence Abstract This paper establishes the life-cycle dynamics of Corporate Venture Capital (CVC) to explore the information acquisition role of CVC investment in the process of corporate innovation. I exploit an identification strategy that allows me to isolate exogenous shocks to a firm’s ability to innovate. Using this strategy, I first find that the CVC life cycle typically begins following a period of deteriorated corporate innovation and increasingly valuable external information, lending support to the hypothesis that firms conduct CVC investment to acquire information and innovation knowledge from startups. Building on this analysis, I show that CVCs acquire information by investing in companies with similar technological focus but have a different knowledge base.

Following CVC investment, parent firms internalize the newly acquired knowledge into internal R&D and external acquisition decisions. Human capital renewal, such as hiring inventors who can integrate new innovation knowledge, is integral in this step.

The CVC life cycle lasts about four years, terminating as innovation in the parent firm rebounds. These findings shed new light on discussions about firm boundaries, managing innovation, and corporate information choices.

–  –  –

5.2 Direct Information Acquisition from Portfolio Companies....... 49

5.3 Integration of CVC-Acquired Information through External Acquisitions 52

–  –  –

I would like to express my sincere gratitude to all those who helped me complete this dissertation. First, I am indebted to my dissertation committee: John Graham (co-chair), David Robinson (co-chair), Manuel Adelino, Alon Brav, Manju Puri, and Ronnie Chatterji. John is my role model as a researcher, teacher, and adviser, as well as an active contributor to the profession, and I thank him for always being there for me and shaping who I am as a scholar. Likewise, I am extremely grateful to David, not only for his guidance on exploring my research agenda, but also for the chance to learn under him as a co-author. Manju opened the door of entrepreneurial finance research to me and provided crucial feedbacks at each stage of my dissertation study. Alon taught me a great deal, through patient conversations as well as heated debates, on how to produce rigorous finance research and be a critical thinker. Manuel provides expert advice on my papers, my job market, and how to establish myself as a young scholar. I am also grateful to Ronnie for encouragements and his unique view of CVC research.

I would also like to thank a number of faculty who were not on my committee but who nonetheless were very gracious with their time and effort—Hengjie Ai, Ravi Bansal, Simon Gervais, Cam Harvey, Wei Jiang, Adriano Rampini, and many others.

I also thank the participants of many workshops that I presented at for valuable feedback that has significantly improved this work. I also learned a great deal and immensely enjoyed the close friendship of many fellow students: Gabriel Bonilla, xii Sergio Correia, Shiming Fu, Donghee Jo, Ben McCartney, Tae-Rog Oh, Alexandru Rosoiu, Basil Williams, and Yichong Zhang,.

My family has made many sacrifices (beginning long before I enrolled at Duke University) and offered me a tremendous amount of support, and for that I am truly grateful. My parents, Suhui Yang and Frank Ma, taught me to follow my dream and have been extremely supportive of the path I chose. Their constant pride, if at times undeserved, has nevertheless been a source of inspiration to me. I owe a tremendous thanks to my parents-in-law, Hua Wei and Peng Zhao. Without their assistance over the past year, it would have been physically impossible for me to go on the job market and defend my dissertation.

All of this is second to the friendship, love, and support (and occasional prodding) of my wife, Yize Zhao. Ever since we fell in love in college, she has been my inspiration and motivation for continuing to improve my knowledge and move my career forward.

She is my rock. I hope that over the course of my life I am able to repay the love and steadfast devotion she has shown me. I also want to express my thanks to my daughter, Carol, for always being such a good girl and cheering me up.

xiii 1


One important theme in economics is to understand how to make investment, organizational, and financial decisions to achieve innovation and long-term growth.1 Financial economists seek to understand the economics of financing innovation by examining such activities as internal research and development, mergers and acquisitions, and strategic alliances.2 Yet the pathways to successful innovation and long-term growth remain far from clear (Lerner, 2012).

This paper contributes to this broad research agenda by studying financing innovation through the lens of Corporate Venture Capital (CVC), an emerging yet understudied piece in the innovation puzzle. As opposed to producing innovation internally through research and development (R&D) or purchasing external innovation through mergers and acquisitions (M&A), corporations create Corporate Venture 1 See, e.g., Schumpeter (1942), Arrow (1962), Aghion and Tirole (1994), and Klette and Kortum (2002). This topic is crucial to understanding such broad economic questions as economic growth and productivity (Acemoglu, Akcigit, Bloom, and Kerr, 2013; Aghion, Akcigit, and Howitt, 2014;

Bloom, Schankerman, and Van Reenen, 2013), finance (Brown, Fazzari, and Petersen, 2009; Hall and Lerner, 2010), entrepreneurship (Chemmanur, Loutskina, and Tian, 2014; Acemoglu and Cao, 2015), and organizational economics (Fulghieri and Sevilir, 2009; Hackbarth et al., 2014).

2 See, e.g., Robinson (2008), Brown et al. (2009), Manso (2011), Bena and Li (2014), Seru (2014), among others.

1 Capital (CVC) divisions to make systematic minority equity investments in early stage entrepreneurial ventures. Consider, for example, GM Ventures, the CVC unit initiated by General Motors in 2010. On behalf of General Motors, GM Ventures invested in dozens of auto-related technological startups, including automotive cleantech, advance materials, among other fields, through minority equity stakes. The case of GM Ventures is hardly an isolated occurrence. According to the National Venture Capital Association (NVCA), CVC investments accounted for about 20% of Venture Capital (VC) investment in 2015,3 and are undertaken not only by technology firms in the media spotlight (such as Google Venture and Intel Capital) but also by moderate-size firms in a variety of industries.

Firms state that they conduct CVC investment to acquire information—that is, to gain exposure to new technologies and markets which in turn benefit their capacity for innovation and broader corporate decisions (Siegel et al., 1988; Macmillan et al., 2008).4 As GM Ventures states, its mission as a CVC is to “invest in growth-stage companies to enhance GM’s ability to innovate.” Theoretically, this information acquisition rationale echoes a long-held framework in the economics of managing and organizing innovation that dates back at least to Nelson (1982).5 The innovation process is typically framed as a two-stage sequential process, in which firms acquire information and generate ideas (first stage) before they invest in and produce those ideas (second stage). Including this information acquisition stage in studying innovation can reconcile many important patterns in economic growth and innovation dynamics 3 In 1999 and 2000, CVC investment peaked at almost $20 billion a year. Although the numbers throughout the VC industry fell in the 2000s, CVC growth has rebounded in recent years (37% increase in 2015, 69% increase in 2014, according to NVCA).

4 Startups are an important source of technological and market knowledge, as well as innovative ideas (Scherer, 1965; Acs and Audretsch, 1988; Kortum and Lerner, 2000; Zingales, 2000).

5 See also Nelson and Winter (1982); Dosi (1988); Fleming and Sorenson (2004); Frydman and Papanikolaou (2015), among others.

2 (Jovanovic and Rob, 1989; Kortum, 1997).6 Despite the importance of acquiring information, little empirical work has studied how firms organize their investment to achieve this goal. Focusing on CVC therefore provides a unique empirical setting to understand how firms seek out and generate new ideas in the broad innovation process.

Motivated by the empirical significance and value of CVC for understanding the process of innovation, I develop empirical tests to assess its role in acquiring information. Those tests examine each stage of a CVC, from why it is initiated, to how it is operated, to when it is terminated. The results establish an investment pattern, labeled as the CVC life cycle, that shows how CVC fits into the process of corporate innovation—deteriorating firms in need of information launch CVC; they actively invest in and use valuable information and knowledge gained through CVC; and they terminate CVC after having regained an edge in innovation therefore informational benefit shrinks—lending support to the information acquisition rationale. Using these findings, I further explore alternative forces that could determine CVC investment and the management of innovation in general, as well as the implication of CVC on corporate innovation at both the firm and industry levels. Figure 1.1 summarizes the CVC life cycle.

The CVC life cycle begins with the initiation stage, in which a firm launches CVC investment, typically following a deterioration in internal innovation. That is, when firms experience a decline in internal innovation, and therefore can benefit from 6 Existing studies have overwhelmingly focused on the second stage of the innovation process— investing and organizing innovation with an exogenous idea and predetermined informational structure. Aghion and Tirole (1994) model several cases in which, taking the research idea and informational environment as given, equity investment is optimal to provide incentive for R&D projects;

Mathews (2006) and Fulghieri and Sevilir (2009) study the problem of strategic equity investment from the industrial organization perspective, and theorize the benefits of coordinating market entry and obtaining competitive advantages; Hellmann (2002) emphasizes that asset complementarity and product market synergies lead firms to invest in synergistic entrepreneurial ventures, particularly when external financing is costly (Allen and Phillips, 2000).

3 potential informational gains by connecting to highly innovative entrepreneurs, they are more likely to initiate CVC investment. Quantitatively, a two-standard-deviation decline in innovation quantity (quality) increases the probability that a firm will initiate CVC by about 52% (67%). Firms in the same industry cluster CVC activities when their sector experiences technological shocks, forming “industry CVC waves.” To mitigate the concern that innovation capability is endogenously determined, I identify plausibly exogenous shocks to firms’ ability to generate ideas and produce innovation. The instrumental variable Knowledge Obsolescence captures the evolution of usefulness of a firm’s knowledge base accumulated in the past, which results from exogenous technological evolution but is independent to such endogenous factors as corporate governance and product market status. In addition, several potential alternative interpretations of the result, such as the effects of financial constraints and excess cash, do not explain this finding.

4 5 Figure 1.1: The Life Cycle of Corporate Venture Capital How do CVCs select and use information and innovative knowledge? At the operation stage of the CVC life cycle, I examine how CVC units strategically select which portfolio companies to acquire information from. I find that CVCs primarily invest in startups that are innovating in technological areas that are close to the CVC parent firm, suggesting that CVCs prefer to invest in companies whose technologies can be adapted to the parent firms’ innovation. Moreover, the portfolio companies appear to possess incremental knowledge, measured using fewer overlaps of innovation profiles and patent citations, which suggests that CVC parents aim to acquire updated knowledge with higher informational gain.7 This means, for example, that an automobile CVC parent firm is likely to invest in an engine startup, particularly when this startup specializes in cutting-edge clean-tech that the outdated parent firm does not possess.

I perform two analyses to isolate how CVC-acquired information is incorporated into parent firms. First, CVC parent firms appear to internalize acquired knowledge through research incorporating the information acquired from their portfolio companies. Second, they capitalize on information by gaining efficiency when making information-sensitive decisions, such as external acquisitions of companies and innovations. Moreover, human capital renewal, such as hiring additional inventors who can use the newly acquired knowledge, is integral to this information acquisition and integration.

Pages:   || 2 | 3 | 4 | 5 |   ...   | 12 |

Similar works:

«International Journal of Business and Behavioral Sciences Vol. 4, No.3; March 2014 Investing The Relationship Between Size, Financial Leverage and Diversification of Products and Market With Companies' Score Disclosure Nasrin Fallah Zarjo1, & Farzin Rezaei2 1 Department of Accounting, Science and Research Branch, Islamic Azad University, Ghazvin, Iran, 2 Assistant professor Department of Management and Accounting,, Islamic Azad University, Ghazvin Branch, Ghazvin,Iran Abstract The main...»

«www.ccsenet.org/ijef International Journal of Economics and Finance Vol. 4, No. 5; May 2012 The Usefulness of an Accounting Information System for Effective Organizational Performance Siamak Nejadhosseini Soudani (Corresponding author) School of Accounting and Management, Islamic Azad University U.A.E. Branch PO Box: 502321, Block 4A, Knowledge Village, Dubai, UAE Tel: 97-14-295-3314 E-mail: Siamak.nejadhosseini@gmail.com Received: March 19, 2012 Accepted: April 9, 2012 Published: May 1, 2012...»

«THE JOURNAL OF FINANCE • VOL. LXVII, NO. 5 • OCTOBER 2012 Financial Expertise as an Arms Race VINCENT GLODE, RICHARD C. GREEN, and RICHARD LOWERY∗ ABSTRACT We show that firms intermediating trade have incentives to overinvest in financial expertise. In our model, expertise improves firms’ ability to estimate value when trading a security. Expertise creates asymmetric information, which, under normal circumstances, works to the advantage of the expert as it deters opportunistic...»

«Curriculum Vitae September 2011 Name Christopher Michael ADAM Addresses Offices: Home: Dean’s Unit, Room 626 10 Paul Street Australian School of Business Bondi Junction University of New South Wales New South Wales Sydney, New South Wales AUSTRALIA 2022 AUSTRALIA 2052 Tel.: (+61 2) 9389 6288 Tel.: (+61 2) 9385 9695 E-mail: c_m_adam@hotmail.com Fax: (+61 2) 9385 5933 E-mail: c.adam@unsw.edu.au Personal Data Date of birth: 31 August 1951 Place of birth: Suva, FIJI Tertiary Education Ph.D.,...»

«NBER WORKING PAPER SERIES THE HOUSING MARKET IMPACTS OF SHALE GAS DEVELOPMENT Lucija Muehlenbachs Elisheba Spiller Christopher Timmins Working Paper 19796 http://www.nber.org/papers/w19796 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 January 2014 We thank Kelly Bishop, Yanyou Chen, Jessica Chu, Elaine Hill, Mark Fleming, Carolyn Kousky, Alan Krupnick, Nicolai Kumino, Corey Lang, Lala Ma, Jan Mares, Ralph Mastromonaco, Klaus Moeltner, Jaren Pope, Stefan...»

«Research in Business and Economics Journal Mobile technology adoption for microfinance delivery in SubSaharan Africa Alice S. Etim Winston Salem State University ABSTRACT Low income communities in Sub-Saharan Africa (SSA) have unsatisfied demand for financial services. Despite the fact that microfinance institutions (MFIs) are emerging, these communities continue to have large unbanked populations who lack access to any form of microloan and other banking services. Ghana, Nigeria and other SSA...»

«PROFILES IN PLANNING: ACE HARDWARE PROFILE BY INNOVATION IN ACTION VENTANA RESEARCH SERIES PROFILES IN PLANNING: Ace Hardware Cognos Enterprise Planning February 2004 Aligning Business and IT to Improve Performance Ventana Research Headquarters Ventana Research Europe 1301 Shoreway Rd, Ste. 208 2nd floor, Berkeley Square House Belmont, CA 94002 Berkeley Square, W1J 6BD London info@ventanaresearch.com europe@ventanaresearch.com © Ventana Research 2003 Page 1 (650) 631-0800 44 (0) 20 7887 6012...»

«ECOLOGICALLY SUSTAINABLE EVENTS MANAGEMENT GUIDE Sustainable events management guide TABLE OF CONTENT This guide provides a list of suppliers that can help manage your event in an environmentally responsible way. All of the following businesses and organizations can, through at least one aspect of their activities, contribute to the environmental success of your event. We recommend giving preference to local suppliers who show a commitment to protecting the environment. We understand this list...»

«MANAGERIAL REPUTATION AND NON-GAAP EARNINGS DISCLOSURES by Yun Cheng A Dissertation Submitted to the Faculty of The College of Business in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy Florida Atlantic University Boca Raton, Florida August 2014 Copyright by Yun Cheng 2014 ii ACKNOWLEDGEMENTS I would like to express my deepest gratitude to my advisor, Dr. Mark Kohlbeck, for his excellent guidance, patience, support, and encouragement throughout my program of...»

«A Layman's View of Artificial Intelligence By Daniel P. Glassman Okay. I've heard enough about what every vendor in the business seems to like to say about their software and all of the artificial intelligence in it. Half the time it sounds like a bunch of teenage boys with rulers arguing over who has.well, never mind. It's just that after a while you get kinda sick of hearing these claims that all claim to match the claims of the other claimant that after a while nobody even knows what the...»

«JOSEPH STEWART ALTER joseph.alter@yale-nus.edu.sg jsalter@pitt.edu Work Address Social Sciences Anthropology Yale-NUS College 6 College Avenue West Singapore 138527 Home Address: Singapore 107 Clementi Road #11-07, Block F, Kent Vale, Singapore 129790 Home Address: India Oakville Landour PO Mussoorie, UK 248179 EDUCATION PH.D. University of California, Berkeley, 1989; Social/Cultural Anthropology. Dissertation: Pahalwani: Identity, Ideology, and the Body of the Indian Wrestler Professor Gerald...»

«Business and Management PhD Programme SUMMARY OF THESES Zsolt Matyusz The effect of contingencies on the use of manufacturing practices and operations performance Ph.D. dissertation Supervisor: Krisztina Demeter Associate professor Budapest, 2012 Faculty of Business Administration Department of Logistics and Supply Chain Management SUMMARY OF THESES Zsolt Matyusz The effect of contingencies on the use of manufacturing practices and operations performance Ph.D. dissertation Supervisor: Krisztina...»

<<  HOME   |    CONTACTS
2016 www.dissertation.xlibx.info - Dissertations, online materials

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.