When do firms undertake R&D by investing in new ventures?

We explore the conditions under which firms are likely to pursue equity investment in new ventures as a way to source innovative ideas. We find that firms invest more in new ventures--commonly referred to as 'corporate venture capital'--in industries with weak intellectual property protect...

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Bibliographic Details
Published in:Strategic management journal 2005-10, Vol.26 (10), p.947-965
Main Authors: Dushnitsky, Gary, Lenox, Michael J.
Format: Article
Language:English
Subjects:
Business innovation
Business investment
Business strategies
Business structures
Business studies
Cash flow
corporate venture capital
Economic models
external R&D
Financial investments
Financial services industries
Industrial sectors
innovation
Investment policy
Investors
R&D
Research & development
Research and development
Strategic management
Studies
Technological change
Technological innovation
Venture capital
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Summary:We explore the conditions under which firms are likely to pursue equity investment in new ventures as a way to source innovative ideas. We find that firms invest more in new ventures--commonly referred to as 'corporate venture capital'--in industries with weak intellectual property protection and, to some extent, in industries with high technological ferment and where complementary distribution capability is important. Furthermore, we find that the greater a firm's cash flow and absorptive capacity, the more likely it is to invest. Our results suggest that in Schumpeterian environments incumbents may supplement their innovative efforts by tapping into the knowledge generated by new ventures.
ISSN:0143-2095
1097-0266
DOI:10.1002/smj.488