Corporate Venture Capital and Firm Scope

Yifei Zhang

♦ This study examines whether and how corporate venture capital (CVC) spurs changes in firm scope. Using two sets of text-based metrics about firm scope, I document that CVC investments are strongly associated with subsequent firm scope changes of CVC corporate parents, including seeding emerging businesses and establishing new segments or divisions. To sharpen causality, I use the introduction of new (non-stop) airlines between the locations of a CVC firm and a startup to positively shock deal flow as well as the knowledge acquisition process. Further evidence is consistent with an experimentation view, with more promising ventures having a stronger strategic impact on the scope changes of parent firms. Lastly, changes in firm scope after CVC are mostly built internally, seldom entail killer acquisitions, and create value for CVC parents.

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