The Influencing Mechanism Of Corporate Venture Capital On Technological Innovation And Value Creation

In such a dynamic and complicated environment of increasingly volatile competition in both domestic and overseas markets, rapid technological change and continually new business model development at the present, it is of great importance for the established firms to know how to give a fast response to environmental change through innovation and transformation so as to gain and maintain sustainable competitive advantages. Open innovation beyond organizational boundary and corporate venturing featuring innovation and transformation become a critical path and also a key strategic choice for the companies to deal with the dynamic and complicated environment. Corporate Venture Capital (CVC), an important mode of open innovation and corporate venturing, has been quickly developed worldwide. As a rising star of CVC, China encounters such problems as inefficient use of capital, listed companies’ insufficient participation in CVC investments and so forth, which hedge the improvement of CVC investments performance as well as the innovation and transformation of the established companies. Corporate investors should pay close attention to and answer the following questions urgently:how is CVC investments performance (strategic performance:technological innovation; comprehensive performance:value creation)? What are the factors influencing CVC performance of technological innovation and value creation? How should the company organize CVC activities effectively? This paper makes a systematic research on CVC investments performance and its influencing mechanism.In recent years, CVC investments have become a hot topic that attracts many scholars’ attention in the international academic circles. However, most of the researches focus on CVC investments of the U.S., and the research of China’s CVC investments is still at the initial stage. There are only a small number of researches done on China’s CVC investments. Moreover, the research design adopts the dyads of "Established firms-CVC programs" without considering the invested entrepreneurial ventures, and thus there may be potential science and reliability limit. Meanwhile, most of the existing researches both at home and abroad are based on CVC programs "black box" and entrepreneurial enterprises’"homogeneity" hypothesis, but ignore the high heterogeneity of CVC programs (enterprises) in the reality. As a result, the universality, scientific nature and reliability of the research results are questioned. While giving a comprehensive review of the relevant research achievements of the world and making an in-depth analysis of the present CVC investments status quo of China’s listed companies, this paper studies the different government structures of CVC programs from the perspective of entrepreneurial companies’heterogeneity. Based on the CVC triads structure logical framework of "Established companies-CVC programs-entrepreneurial enterprises" and the two dimensions of CVC investments strategic performance and comprehensive performance, it analyzes the unbalanced panel data consisting of the samples of public companies observed on Shanghai and Shenzhen Main Boards from2000to2011/2012, and does an empirical study of CVC investments influencing mechanism for the corporate investor’s technological innovation and value creation with such econometric analytical methods as the negative two binomial regression model, the generalized panel-data linear regression random effects model and the quantile regression model. Afterwards, the following conclusions are drawn:(1) CVC investments are conducive to technological innovation. There is a U-shaped relationship between CVC investments portfolio knowledge diversification and corporate investor’s technological innovation. Corporate investor’s absorptive capacity and involvement with portfolio firms play a positive role in moderating the U-shaped relationship. Therefore, Incumbent firms are supposed to improve their absorptive capacity and establish interactive participation management mechanism after investment so as to achieve high involvement relationship.(2) There is a U-shaped relationship between CVC portfolio diversification and corporate investor’s value creation, the relationship between the diversification profile of its CVC portfolio and value creation is positively moderated by organizational slack. Hence the premise of CVC investments value creation is that the invested CVC portfolio company should have diversified portfolio and certain organizational slack should be kept from the strategic perspective in order to ensure the financing ability at the moment and in the future.(3)The Influencing Mechanism of Corporate Venture Capital on Technological Innovation and Value Creation was different with the CVC programs governance structure(CVCPGS). There is an inverted U-shaped relationship between CVC portfolio knowledge diversification and corporate investor’s technological innovation in the share-holding CVCPGS but a U-shaped relationship in the non-share-holding CVCPGS. The U-shaped relationship between CVC portfolio diversification and corporate investor’s value creation can be set up only in the non-share-holding CVCPGS. Consequently, the incumbent firms should carefully design CVC programs and take corresponding management strategies.(4) The U-shaped relationship between corporate investor’s portfolio of venture companies and established companies value creation can be founded only at the quantile of0.5,0.75and0.9. Besides, as the firm value gets higher, the diversification degree of U-shaped relationship extreme points will be lower. The moderating effect of organizational slack can be achieved only at the quantile of0.5,0.75and0.9, and the moderating effects of companies with different firm values are totally different. So the corporate investors should increase the value and choose suitable CVC portfolio of venture companies according to the condition of organizational slack.Compared with the existing researches, the innovation and theoretical contribution of this paper lies in:(1) This paper reveals the mechanism of how China’s CVC investments make an influence on technological innovation and value creation, and contributes to the CVC literature. Firstly, the paper expands the analysis framework from the dyads of "Established firms-CVC programs" to the CVC triads structure logical framework of "Established companies-CVC programs-entrepreneurial enterprises", which helps scholars and managers get an improved understanding of the dynamic and interactive influencing relationship between the company’s investors, CVC programs and entrepreneurial companies and provides a more complete theoretical framework for the future research. Secondly, from the perspective of entrepreneurial firms’ heterogeneity, this paper discusses about the relationship between CVC investments and corporate investor’s technological innovation and value creation, offering a new perspective for CVC research. Thirdly, it identifies contingency factors of CVC investments and corporate investor’s technological innovation and value creation, namely, knowledge property of parents (absorptive capacity), resource attribute (organizational slack) and integrated action (involvement relationship), and discloses CVC investments black box of corporate investor’s technological innovation and value creation. Fourthly, it presents the action mechanism of CVC program’s heterogeneity in entrepreneurial enterprises portfolio diversification and established companies’ technological innovation and value creation and gives a new explanation for some controversial views. Lastly, this paper reveals the effect of incumbent firm value on value creation through CVC investments. It is not a feasible option for all the companies to achieve value creation CVC investments.(2) The paper demonstrates the mechanism of how Chinese listed companies’ CVC investments affect technological innovation and value creation, which enriches and expands the open innovation literature. The current literatures related to open innovation focus on the research of technological source acquisition modes such as alliances, mergers and acquisitions and technology market, while this paper orientates CVC investments as a mechanism for searching external knowledge sources. As an exploratory search tool, CVC is conducive to search and acquire new business opportunities and technical windows. By inter-organizational learning activities, CVC investments helps the companies grow and increase their value. Therefore, the business practitioners and academic scholars should not only be concerned about alliances, mergers and acquisitions and technical transformation of open innovation but also pay close attention to CVC investments important role and study and practice it as an important form of open innovation.(3) This paper reveals the mechanism of how China’s CVC investments make an influence on technological innovation and value creation, which enriches and expands the corporate entrepreneurship literature. The paper orientates CVC investments as a special form of external corporate venturing of corporate entrepreneurship. The company searches and identifies technology, market and business opportunities through CVC investments and stimulates and upgrades the company’s innovation and promotes the growth of its value so as to obtain sustainable competitive advantages. Proposing the theoretical framework, the paper identifies and finds out in what conditions CVC investments influences corporate investor’s technological innovation and value creation based on empirical research, which expands and enriches corporate entrepreneurship research literatures.(4) The paper does a research on CVC investments from the perspective of entrepreneurial companies’heterogeneity, and thus enriches the firm heterogeneity theory. The hypothesis of classical economics is that the firms is a "black box" and is of non-heterogeneity. As Coase puts "transaction costs" into economic analysis, a large number of scholars begin to study competitive advantages of companies from the angle of firm heterogeneity, but they rarely do research on the influence that enterprises’knowledge heterogeneity makes on the inter-organizational learning. In addition, it investigates the influence that enterprises’knowledge heterogeneity makes the learning situation of inter-organizations in CVC investments relationships so as to make us understand how CVC investments affects corporate investor’s performance of technological innovation and value creation. This study extends the application of the firm heterogeneity theory into the research of inter-organizational learning activities and provides a new vision for relevant researches.