Working Paper: NBER ID: w21424
Authors: Marco Ceccagnoli; Matthew J. Higgins; Hyunsung D. Kang
Abstract: Despite the fact that one of the main goals of corporate venture capital (CVC) investments in high-tech industries is to gain a window on future technologies, the relationship between CVC investments and strategies used to acquire technologies in the markets, such as licensing, has not been adequately explored. To address this gap, we build on the real option literature suggesting that CVC investments can be used as real options in the markets for technology. Accordingly, we formulate hypotheses about key drivers of the option value of CVC investments and the decision to exercise the option. Using a longitudinal dataset based on 604 dyads formed by a sample of global pharmaceutical firms and their external technology partners, we find that corporate investors’ scientific capabilities, technological domains, research pipelines, and the resolution of exogenous uncertainty related to partner firms’ technologies impact investors’ decisions on CVC investments and ex post technology acquisition. In our research setting, the most common way to exercise the option post-CVC investment is via technology licensing.
Keywords: No keywords provided
JEL Codes: G34; L24; L65; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| weaker scientific capabilities (P19) | CVC investments (G24) |
| greater uncertainty (D89) | CVC investments (G24) |
| greater proportion of early-stage technologies (O39) | less likely to make CVC investments (G31) |
| limited timeframe to exercise CVC options (D25) | less likely to make CVC investments (G31) |
| reduction in exogenous uncertainty (D89) | increase in probability of ex post technology transactions (O39) |
| increase in value of portfolio firm (G32) | increase in probability of ex post technology transactions (O39) |