Corporate Venture Capital And Investing Firm Innovation Rates

Innovation is one of the most important long-term competitive advantages for enterprises.Innovation generates from the sourcing and absorbing the external knowledge.As a distinguished venture capital,corporate venture capital takes advantages on external knowledge sourcing and strategic layout from pre-investment observation,investment due diligence and post-investment management.Thus,more and more enterprises establish CVC and pay more attention to achieve continues growth.This paper focuses on finding the relation between CVC investments and enterprise's innovation rate and other indicators that can moderate this relation.The sample contains China's public TMT company in global market.This paper used the innovation rate calculated by quality and quantity as explained variables and applied the CVC investment activity as explanatory variables.The method is multiple regression by using different model,including fixed effects model,negative binominal model and Tobit model.The result is as below.First,it is noticeable that I found the relation between CVC and innovation rate is significant inverted U-shaped rather than positive linear,which means CVC investment can improve the innovation output but over-investment can be harmful for internal innovation.Next,this paper analyzed the coefficient of interaction term.The result is shown that the involved depth of CVC and enterprise's absorptive capacity neither have no significant moderating effect on this inverted U-shaped relation.Based on these findings,the paper believes that appropriate CVC investment is necessary for external knowledge sourcing which is necessary for innovation.But conducting too many investments will not help innovation generating.Thus,CVCs and enterprises should be prudent about external investments.Meanwhile,the portion of board in an investment is not always the first priority if your goal is knowledge acquisition.It is effective to build up internal communication mechanism for both CVC managers and R&D specialists which significantly reduces the cost of information transmission and increase absorptive capacity.