A Real Options View of Corporate Venture Capital Investment Decisions: An Empirical Examination
This paper joins the strategic management research literature with the entrepreneurial research literature by developing a real options framework to explain and predict corporate venture capital investment decisions. Corporate venture capital is viewed as containing a series of real options. The initial investment opportunity is analogous to a call option to invest. Upon exercising the call option, the investing firm acquires two additional real options: the abandonment option in adverse market conditions and growth options in favorable market conditions. This paper proposes that established firms' propensity to make corporate venture capital investments are influenced by the factors that determine the economic value of the real options embedded in corporate venture capital projects. These real options value drivers include uncertainty, usage flexibility, growth potential and competition. Using a large sample of corporate venture capital investments during 1980-2004, this paper finds strong empirical support for a real options view of corporate venture capital investments.
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|Date of creation:||2006|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.business.uiuc.edu/Working_Papers/Main.asp|
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