The effects of corporate venture capital on value creation and innovation of European public owned firms

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Abstract

The practice of corporate venture capital (CVC) has been widely adopted by corporations that invest in highly disruptive start-ups with the aim of fueling innovation and gain strategic advantages. Even if a wide consensus exists on the strategic benefits and performance of CVC investors in the North American venture capital industry, scarce information is available on the European CVC ecosystem. Therefore, the scope of this research is to investigate whether CVC activity, measured as the number of investments, deal size, and the number of realized exits is beneficial for value creation and innovation for European listed companies. Using a panel of CVC investors linked to European listed firms, it is found evidence that CVC activity creates firm value in the period under consideration (2008–2019), confirming North American’s past evidence. Surprisingly, exits convey a negative effect on firm value, suggesting that CVC performance may not be satisfactory enough. Moreover, when considering innovation, evidence is presented that investing in rounds with a higher deal size positively affects investor’s patenting levels, indicating that the later the start-up’s stage in its life cycle, the higher the possibility for the CVC investor to effectively absorb its technology. The relationship is true also for lagged CVC activity, confirming deferred effects on innovation demonstrated on US companies. The findings shed light on the European CVC ecosystem and give room for additional research on CVC investors’ exit performance and co-investors’ benefits on patenting levels.

Keywords: Corporate Venture Capital, Innovation, Start-Up, Europe, R&D, Patents Brands and Trademarks, Tobin’s q, Publicly Owned Firms, Value Creation, Ownership Structure, Organizational Design, M&As

Authors’ individual contribution: Conceptualization — G.B. and G.G.; Methodology — G.B. and G.G.; Formal Analysis — G.B. and G.G.; Investigation — G.B. and G.G.; Resources — G.B. and G.G.; Data Curation — G.B. and G.G.; Writing — Original Draft — G.B. and G.G.; Writing — Review & Editing — G.B. and G.G.; Supervision — G.B. and G.G.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G24, G34

Received: 16.05.2021
Accepted: 23.07.2021
Published online: 27.07.2021

How to cite this paper: Bider, G., & Gigante, G. (2021). The effects of corporate venture capital on value creation and innovation of European public owned firms. Corporate Ownership & Control, 18(4), 117–133. https://doi.org/10.22495/cocv18i4art9