We invite you to discover the new research publication “Investment Decisions under Uncertainty: Corporate Venture Capital as a Real Option“.
This article was co-authored by Sabrina Khemiri, Associate Professor in Corporate Finance at IMT-BS, Shuwaikh F. (EMLV, Paris); Hughes M. (University of Leicester, UK) and Brinette S. (EDC, Paris), and is published in the International Journal of Finance and Economics.
This paper aims to assess the role of corporate venture capital (CVC) as option-creating investments and how corporate investors practice CVC options in their investment decisions.
Using a sample of 4206 US firms between 1998 and 2019, the results show that sector fit and geographic fit reduce uncertainty and impact investors’ decisions on CVC investments. When exogenous uncertainty is mitigated, CVC-backed companies experience higher investment amounts than independent venture capital funds (IVC)-backed ones.
Help investors to reduce uncertainty surrounding investments
The results evidence that follow-on investments motivate IVC-backed companies to exit via IPOs. At the same time, a prolonged duration for the organisational learning option leads CVC-backed companies to exit via acquisition.
This study helps investors to reduce uncertainty surrounding investments and improve the usefulness of their real options. We also provide implications for how policymakers target and develop an entrepreneurial ecosystem.
