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Corporate Venturing, Allocation of Talent, and Competition for Star Managers

  • Jean-Etienne de Bettignies

    ()

    (Queen's School of Business, Queen's University, Kingston, Ontario K7L 3N6, Canada)

  • Gilles Chemla

    ()

    (Imperial College London, DRM-CNRS; and CEPR, Tanaka Business School, Imperial College London, South Kensington Campus, London SW7 2AZ, United Kingdom)

We provide new rationales for corporate venturing, based on competition for talented managers. As returns to venturing increase, firms engage in corporate venturing for reasons other than capturing these returns. First, higher venturing returns increase managerial compensation, to which firms respond by increasing incentives. Managers increase effort, prompting firms to reallocate them to new ventures, where the marginal product of effort is highest. Second, as returns to venturing become large, corporate venturing emerges as a way to recruit/retain managers who would otherwise choose alternative employment. We derive several testable empirical predictions about the determinants and structure of corporate venturing.

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File URL: http://dx.doi.org/10.1287/mnsc.1070.0758
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Article provided by INFORMS in its journal Management Science.

Volume (Year): 54 (2008)
Issue (Month): 3 (March)
Pages: 505-521

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Handle: RePEc:inm:ormnsc:v:54:y:2008:i:3:p:505-521
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  1. Paul Gompers & Josh Lerner, 2000. "The Determinants of Corporate Venture Capital Success: Organizational Structure, Incentives, and Complementarities," NBER Chapters, in: Concentrated Corporate Ownership, pages 17-54 National Bureau of Economic Research, Inc.
  2. Klaus Schmidt, 1999. "Convertible Securities and Venture Capital Finance," CESifo Working Paper Series 217, CESifo Group Munich.
  3. Manfred Dix & N�Stor Gandelman, 2007. "R&D Institutional Arrangements: Start-Up Ventures Versus Internal Lab," Manchester School, University of Manchester, vol. 75(2), pages 218-236, 03.
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  8. Winters, Terry E. & Murfin, Donald L., 1988. "Venture capital investing for corporate development objectives," Journal of Business Venturing, Elsevier, vol. 3(3), pages 207-222.
  9. Oyer, Paul & Schaefer, Scott, 2005. "Why do some firms give stock options to all employees?: An empirical examination of alternative theories," Journal of Financial Economics, Elsevier, vol. 76(1), pages 99-133, April.
  10. Hellmann, Thomas, 2002. "A theory of strategic venture investing," Journal of Financial Economics, Elsevier, vol. 64(2), pages 285-314, May.
  11. Anton, James J & Yao, Dennis A, 1995. "Start-ups, Spin-offs, and Internal Projects," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(2), pages 362-78, October.
  12. Gromb, Denis & Scharfstein, David, 2002. "Entrepreneurship in Equilibrium," CEPR Discussion Papers 3652, C.E.P.R. Discussion Papers.
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  15. Sykes, Hollister B., 1986. "The anatomy of a corporate venturing program: Factors influencing success," Journal of Business Venturing, Elsevier, vol. 1(3), pages 275-293.
  16. Bharat N. Anand & Alexander Galetovic & Alvaro Stein, 2004. "Incentives Versus Synergies in Markets for Talent," Documentos de Trabajo 179, Centro de Economía Aplicada, Universidad de Chile.
  17. Thomas Hellmann, 2007. "When Do Employees Become Entrepreneurs?," Management Science, INFORMS, vol. 53(6), pages 919-933, June.
  18. Jean Tirole, 1999. "Incomplete Contracts: Where Do We Stand?," Econometrica, Econometric Society, vol. 67(4), pages 741-782, July.
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