Does Corporate Venture Capital Investment Affect Firm’s Connoisseurship?
Recently an emerging discussion regarding corporate venture capital investment (CVC) is getting attention as a new research theme. These discussions have focused on inter-organizational knowledge acquisition by which firm imitates technologies or ideas of entrepreneurial ventures. Previous literature also has suggested that imitations of technologies or ideas by backing firms are limited in industries which intellectual property protection is weak for an appropriability of product innovation.
However, if these suggestions by previous literature are correct, we cannot have enough answer for why firms do CVC investment in industries which patent protection is strong. To provide a solution for this problem, we focused on a moderating effect of CVC investment on firm’s absorptive capacity (Cohen and Levinthal, 1990). In particular, we evaluate how corporate value changes when a focal firm acquires external knowledge. For an empirical analysis, we use licenses and acquisitions panel data of patents in the pharmaceutical industry.
According to the result of the analysis, greater CVC investment positively correlates with firm’s value when acquiring uncertain external knowledge. In contrast, greater CVC investment negatively correlates firm’s value when acquired external knowledge is relatively certain. These findings suggest that information accumulation via CVC investment reduces technological uncertainty in that area. These findings also suggest that CVC investment may contribute to both venture financings and venture’s exit.