Corporate venture capital investment decisions

This doctoral dissertation develops a real options framework of corporate venture capital (CVC) investment decisions. CVC 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 at least two additional real options: the abandonment option in adverse market conditions and growth options in favorable market conditions. The dissertation proposes that established firms' propensity to make CVC investments are influenced by the factors that determine the economic value of the real options embedded in CVC projects. These options value drivers include uncertainty, usage-flexibility, growth potential and competition.; In addition, since real options are created and exercised through managerial discretion that is enabled and constrained by firm-level resources and capabilities, this dissertation also examines how heterogeneity in resources and capabilities influences the value of real options and CVC investment propensity in two aspects: how resource base diversity helps established firms capture the value of growth options and helps with timely abandonment and efficient switching, and thus influences CVC investment propensity.; Using a large sample of CVC investments during 1980-2004, this dissertation makes a comprehensive analysis of the effects of these options value drivers on CVC investment propensity. The empirical results provide strong support for a real options view of CVC investments and provide limited evidence for the effects of firm heterogeneity in resources and capabilities on CVC investment propensity.; The dissertation makes contributions to both real options and entrepreneurship. The analysis helps us better understand corporate entrepreneurial investment decisions and has business policy implications.