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Does distance create beauty? technological distance, CVC investment diversification, and innovation performance

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  • Mu, Yuanni
  • Yang, Ye
  • Fang, Zhixiang

Abstract

We construct a measure of technological distance between incumbent firms and their investee firms using patent text data and examine its impact on the innovation performance of incumbent firms. Our analysis reveals an inverted U-shaped relationship between technological distance and innovation performance. Furthermore, we find that absorptive capacity, along with the regional and industry diversity of the investment portfolio, flattens this inverted U-shape and helps mitigate the adverse effects of extreme technological distance. In contrast, technological diversity has a dual-edged effect—both facilitating and complicating innovation, depending on the type of innovation involved.

Suggested Citation

  • Mu, Yuanni & Yang, Ye & Fang, Zhixiang, 2025. "Does distance create beauty? technological distance, CVC investment diversification, and innovation performance," Economics Letters, Elsevier, vol. 257(C).
    • Handle: RePEc:eee:ecolet:v:257:y:2025:i:c:s0165176525005361
    DOI: 10.1016/j.econlet.2025.112699
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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