Strategic Management Journal2014-12-03 1:52 PM

The relationship between portfolio diversification and firm value: The evidence from corporate venture capital activity

Yi Yang1, Vadake K. Narayanan and Donna M. De Carolis

Keywords: corporate venture capital;diversification;real option;firm value

Corporate venture capital (CVC) activity exposes firms to new technologies and markets. An important but as yet unexplored question is the relationship of the industry diversification profile of the portfolio of venture companies to corporate value creation. Insights from options and diversification perspectives support our hypothesis that diversification of a corporate investor's portfolio of venture companies is related to corporate wealth creation in a U-shaped relationship. We also propose that a corporate investor's financial constraints moderate the relationship between the diversification profile of its CVC portfolio and value creation. When we tested our hypotheses using a sample of CVC investments across multiple industries, we found support for them, and these findings may inform the CVC activities of corporate investors.

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Strategic Management Journal

The Strategic Management Journal seeks to publish the highest quality research with questions, evidence and conclusions that are relevant to strategic management and engaging to strategic management scholars.

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