Real Options and Investment Mode: Evidence from Corporate Venture Capital and Acquisition

Published Online:https://doi.org/10.1287/orsc.1100.0551

References

  • Ahuja G., Lampert C. M. Entrepreneurship in the large corporation: A longitudinal study of how established firms create breakthrough innovations. Strategic Management J. (2001) 22(6–7):521–543CrossrefGoogle Scholar
  • Amram M., Kulatilaka N.Real Options: Managing Strategic Investment in an Uncertain World (1999) (Harvard Business School Press, Boston) Google Scholar
  • Argyres N. S. Evidence on the role of firm capabilities in vertical integration decisions. Strategic Management J. (1996) 17(2):129–150CrossrefGoogle Scholar
  • Argyres N. S., Bercovitz J., Mayer K. J. Complementarity and evolution of contractual provisions: An empirical study of IT services contracts. Organ. Sci. (2007) 18(1):3–19LinkGoogle Scholar
  • Arikan A. M., McGahan A. M. The development of capabilities in new firms. Strategic Management J. (2010) 31(1):1–18CrossrefGoogle Scholar
  • Auster E. R. The relationship of industry evolution to patterns of technological linkages, joint ventures, and direct investment between U.S. and Japan. Management Sci. (1992) 38(6):778–792LinkGoogle Scholar
  • Balakrishnan S., Koza M. P. Information asymmetry, adverse selection, and joint ventures. J. Econom. Behav. Organ. (1993) 20(1):99–117CrossrefGoogle Scholar
  • Balakrishnan S., Wernerfelt B. Technological change, competition and vertical integration. Strategic Management J. (1986) 7(4):347–359CrossrefGoogle Scholar
  • Benson D., Ziedonis R. H. Corporate venture capital as a window on new technologies: Implications for the performance of corporate investors when acquiring startups. Organ. Sci. (2009) 20(2):329–351LinkGoogle Scholar
  • Berger P. G., Ofek E., Swary I. Investor valuation of the abandonment option. J. Financial Econom. (1996) 42(2):257–287CrossrefGoogle Scholar
  • Bollerslev T., Chou R. Y., Kroner K. F. ARCH modeling in finance: A review of the theory and empirical evidence. J. Econometrics (1992) 52(1–2):5–59CrossrefGoogle Scholar
  • Bowman E. H., Hurry D. Strategy through the option lens: An integrated view of resource investments and the incremental-choice process. Acad. Management Rev. (1993) 18(4):760–782CrossrefGoogle Scholar
  • Campa J. M. Entry by foreign firms in the United States under exchange-rate uncertainty. Rev. Econom. Statist. (1993) 75(4):614–622CrossrefGoogle Scholar
  • Capron L., Pistre N. When do acquirers earn abnormal returns? Strategic Management J. (2002) 23(9):781–794CrossrefGoogle Scholar
  • Capron L., Shen J.-C. Acquisitions of private vs. public firms: Private information, target selection, and acquirer returns. Strategic Management J. (2007) 28(9):891–911CrossrefGoogle Scholar
  • Carruth A., Dickerson A., Henley A. What do we know about investment under uncertainty? J. Econom. Survey (2000) 14(2):119–153CrossrefGoogle Scholar
  • Chesbrough H. W. Making sense of corporate venture capital. Harvard Bus. Rev. (2002) 80(3):90–100Google Scholar
  • Chi T. Option to acquire or divest a joint venture. Strategic Management J. (2000) 21(6):665–687CrossrefGoogle Scholar
  • Chi T., McGuire D. J. Collaborative ventures and value of learning: Integrating the transaction cost and strategic option perspectives on foreign market entry. J. Internat. Bus. Stud. (1996) 27(2):285–308CrossrefGoogle Scholar
  • Chi T., Seth A. A dynamic model of the choice of mode for exploiting complementary capabilities. J. Internat. Bus. Stud. (2009) 40(3):365–387CrossrefGoogle Scholar
  • Cochrane J. H. The risk and return of venture capital. J. Financial Econom. (2005) 75(1):3–52CrossrefGoogle Scholar
  • Coff R. W. How buyers cope with uncertainty when acquiring firms in knowledge intensive industries: Caveat emptor. Organ. Sci. (1999) 10(2):144–161LinkGoogle Scholar
  • Cohen W. M., Nelson R. R., Walsh J. P. Protecting their intellectual assets: Appropriability conditions and why U.S. manufacturing firms patent (or not). (2000) . Working Paper 7552, National Bureau of Economic Research, Cambridge, MAGoogle Scholar
  • Cornelli F., Yosha O. Stage financing and the role of convertible securities. Rev. Econom. Stud. (2003) 70(1):1–32CrossrefGoogle Scholar
  • Cossin D., Leleux B., Saliasi E. Understanding the economic value of legal covenants in investment contracts: A real-options approach to venture equity contracts. (2002) . International Center for Financial Asset Management and Engineering Research Paper 63, GenevaGoogle Scholar
  • Davis R., Duhaime I. M. Diversification, vertical integration, and industry analysis: New perspectives and measurement. Strategic Management J. (1992) 13(7):511–524CrossrefGoogle Scholar
  • Dess G. G., Beard D. W. Dimensions of organizational task environments. Admin. Sci. Quart. (1984) 29(1):52–73CrossrefGoogle Scholar
  • Dess G. G., Ireland R. D., Zahra S. A., Floyd S. W., Janney J. J., Lane P. J. Emerging issues in corporate entrepreneurship. J. Management (2003) 29(3):351–378Google Scholar
  • Dixit A. Entry and exit decisions under uncertainty. J. Political Econom. (1989) 97(3):620–638CrossrefGoogle Scholar
  • Dixit A. K., Pindyck R. S.Investment Under Uncertainty (1994) (Princeton University Press, Princeton, NJ) CrossrefGoogle Scholar
  • Dushnitsky G., Lenox M. J. When do firms undertake R&D by investing in new ventures? Strategic Management J. (2005) 26(10):947–965CrossrefGoogle Scholar
  • Dushnitsky G., Lenox M. J. When does corporate venture capital investment create firm value? J. Bus. Venturing (2006) 21(6):753–772CrossrefGoogle Scholar
  • Dushnitsky G., Shaver J. M. Limitations to interorganizational knowledge acquisition: The paradox of corporate venture capital. Strategic Management J. (2009) 30(10):1045–1064CrossrefGoogle Scholar
  • Dyer J. H., Kale P., Singh H. When to ally and when to acquire. Harvard Bus. Rev. (2004) 82(7/8):109–115Google Scholar
  • Fama E. F., French K. R. Common risk factors in the returns on stocks and bonds. J. Financial Econom. (1993) 33(1):3–56CrossrefGoogle Scholar
  • Folta T. B. Governance and uncertainty: The trade-off between administrative control and commitment. Strategic Management J. (1998) 19(11):1007–1028CrossrefGoogle Scholar
  • Folta T. B., O'Brien J. P. Entry in the presence of dueling options. Strategic Management J. (2004) 25(2):121–138CrossrefGoogle Scholar
  • Folta T. B., Johnson D. R., O'Brien J. P. Uncertainty, irreversibility, and the likelihood of entry: An empirical assessment of the option to defer. J. Econom. Behav. Organ. (2006) 61(3):432–452CrossrefGoogle Scholar
  • Gompers P. A. Optimal investment, monitoring, and the staging of venture capital. J. Finance (1995) 50(5):1461–1489CrossrefGoogle Scholar
  • Gompers P., Lerner J. The determinants of corporate venture capital success: Organizational structure, incentives, and complementarities. (1998) . Working Paper 6725, National Bureau of Economic Research, Cambridge, MAGoogle Scholar
  • Grover R. Disney: When you wish upon a startup. BusinessWeek (2008) June 5Google Scholar
  • Gulati R. How CEOs manage growth agendas. Harvard Bus. Rev. (2004) 82(7/8):124–132Google Scholar
  • Gulati R., Gargiulo M. Where do interorganizational networks come from? Amer. J. Sociol. (1999) 104(5):1439–1493CrossrefGoogle Scholar
  • Gulati R., Singh H. The architecture of cooperation: Managing coordination costs and appropriation concerns in strategic alliances. Admin. Sci. Quart. (1998) 43(4):781–814CrossrefGoogle Scholar
  • Hagedoorn J., Duysters G. External sources of innovative capabilities: The preference for strategic alliances or mergers and acquisitions. J. Management Stud. (2002) 39(2):167–188CrossrefGoogle Scholar
  • Haspeslagh P., Jemison D. B.Managing Acquisitions (1991) (Free Press, New York) Google Scholar
  • Heckman J. J. Sample selection bias as a specification error. Econometrica (1979) 47(1):153–161CrossrefGoogle Scholar
  • Hennart J.-F., Reddy S. The choice between mergers/acquisitions and joint ventures: The case of Japanese investors in the United States. Strategic Management J. (1997) 18(1):1–12CrossrefGoogle Scholar
  • Hoetker G. The use of logit and probit models in strategic management research: Critical issues. Strategic Management J. (2007) 28(4):331–344CrossrefGoogle Scholar
  • Hoskisson R. E., Busenitz L. W., Hitt M. A., Ireland R. D., Camp S. M., Sexton D. L. Market uncertainty and learning distance in corporate entrepreneurship entry mode choice. Strategic Entrepreneurship: Creating a New Mindset (2002) (Blackwell Publishers, Oxford, UK) 151–172Google Scholar
  • Hurry D., Miller A. T., Bowman E. H. Calls on high-technology: Japanese exploration of venture capital investments in the United States. Strategic Management J. (1992) 13(2):85–101CrossrefGoogle Scholar
  • Kaplan S. N., Stromberg P. Financial contracting theory meets the real world: An empirical analysis of venture capital contracts. Rev. Econom. Stud. (2003) 70(2):281–315CrossrefGoogle Scholar
  • Keats B. W., Hitt M. A. A causal model of linkages among environmental dimensions, macro organizational characteristics, and performance. Acad. Management J. (1988) 31(3):570–598CrossrefGoogle Scholar
  • Keil T.External Corporate Venturing: Strategic Renewal in Rapidly Changing Industries (2002) (Quorum Books, Westport, CT) Google Scholar
  • Keil T., Maula M. V. J., Schildt H. A., Zahra S. A. The effect of governance modes and relatedness of external business development activities on innovative performance. Strategic Management J. (2008) 29(8):895–907CrossrefGoogle Scholar
  • Kogut B. Joint ventures and the option to expand and acquire. Management Sci. (1991) 37(1):19–33LinkGoogle Scholar
  • Kogut B., Singh H. The effect of national culture on the choice of entry mode. J. Internat. Bus. Stud. (1988) 19(3):411–432CrossrefGoogle Scholar
  • Kulatilaka N., Perotti E. C. Strategic growth options. Management Sci. (1998) 44(8):1021–1031LinkGoogle Scholar
  • Kumar M. V. S. The value from acquiring and divesting a joint venture: A real options approach. Strategic Management J. (2005) 26(4):321–331CrossrefGoogle Scholar
  • Leiblein M. J. The choice of organizational governance form and performance: Predictions from transaction cost, resource-based, and real options theories. J. Management (2003) 29(6):937–961Google Scholar
  • Leiblein M. J., Miller D. J. An empirical examination of transaction- and firm-level influences on the vertical boundaries of the firm. Strategic Management J. (2003) 24(9):839–859CrossrefGoogle Scholar
  • Li Y. Duration analysis of venture capital staging: A real options perspective. J. Bus. Venturing (2008) 23(5):497–512CrossrefGoogle Scholar
  • Long M., Malitz I. The investment-financing nexus: Some empirical evidence. Midland Corporate Finance J. (1985) 3(3):53–59Google Scholar
  • MacMillan I., Roberts E. B., Livada V., Wang A. Corporate venture capital (CVC): Seeking innovation and strategic growth. (2008) . Working Paper NIST GCR 08–916, National Institute of Standards and Technology, U.S. Department of Commerce, Washington, DCGoogle Scholar
  • McGrath R. G. A real options logic for initiating technology positioning investments. Acad. Management Rev. (1997) 22(4):974–996CrossrefGoogle Scholar
  • McGrath R. G., MacMillan I. C. Market busting. Harvard Bus. Rev. (2005) 83(3):81–89Google Scholar
  • McGrath R. G., Nerkar A. Real options reasoning and a new look at the R&D investment strategies of pharmaceutical firms. Strategic Management J. (2004) 25(1):1–21CrossrefGoogle Scholar
  • McGrath R. G., Ferrier W. J., Mendelow A. L. Real options as engines of choice and heterogeneity. Acad. Management Rev. (2004) 29(1):86–101CrossrefGoogle Scholar
  • Myers S. C. Determinants of corporate borrowing. J. Financial Econom. (1977) 5(2):147–176CrossrefGoogle Scholar
  • Oxley J. E. Appropriability hazards and governance in strategic alliances: A transaction cost approach. J. Law, Econom. Organ. (1997) 13(2):387–409CrossrefGoogle Scholar
  • Pacheco-de-Almeida G., Henderson J. E., Cool K. O. Resolving the commitment versus flexibility trade-off: The role of resource accumulation lags. Acad. Management J. (2008) 51(3):517–536CrossrefGoogle Scholar
  • Penrose E. T.The Theory of the Growth of the Firm (1959) (John Wiley & Sons, New York) Google Scholar
  • Pindyck R. S. Irreversibility, uncertainty, and investment. J. Econom. Literature (1991) 29(3):1110–1148Google Scholar
  • Reuer J. J., Ragozzino R. Adverse selection and M&A design: The roles of alliances and IPOs. J. Econom. Behav. Organ. (2008) 66(2):195–212CrossrefGoogle Scholar
  • Roberts B. Show me the technology. Electronic Business (2006) August 1Google Scholar
  • Roberts E. B., Berry C. A. Entering new businesses: Selecting strategies for success. Sloan Management Rev. (1985) 26(3):3–17Google Scholar
  • Ruhnka J. C., Young J. E. Some hypotheses about risk in venture capital investing. J. Bus. Venturing (1991) 6(2):115–133CrossrefGoogle Scholar
  • Sahlman W. A. The structure and governance of venture-capital organizations. J. Financial Econom. (1990) 27(2):473–521CrossrefGoogle Scholar
  • Schildt H. A., Maula M. V. J., Keil T. Explorative and exploitative learning from external corporate ventures. Entrepreneurship Theory Practice (2005) 29(4):493–515CrossrefGoogle Scholar
  • Schlingemann F. P., Stulz R. M., Walkling R. A. Divestitures and the liquidity of the market for corporate assets. J. Financial Econom. (2002) 64(1):117–144CrossrefGoogle Scholar
  • Smit H. T. J., Ankum L. A. A real options and game-theoretic approach to corporate-investment strategy under competition. Financial Management (1993) 22(3):241–250CrossrefGoogle Scholar
  • Smit H. T. J., Trigeorgis L.Strategic Investment: Real Options and Games (2004) (Princeton University Press, Princeton, NJ) CrossrefGoogle Scholar
  • Sorenson O., Stuart T. E. Syndication networks and the spatial distribution of venture capital investments. Amer. J. Sociol. (2001) 106(6):1546–1588CrossrefGoogle Scholar
  • Sykes H. B. Corporate venture capital: Strategies for success. J. Bus. Venturing (1990) 5(1):37–47CrossrefGoogle Scholar
  • Teece D. J. Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy. Res. Policy (1986) 15(6):285–305CrossrefGoogle Scholar
  • Titman S., Wessels R. The determinants of capital structure choice. J. Finance (1988) 43(1):1–19CrossrefGoogle Scholar
  • Tong T. W., Reuer J. J., Reuer J. J., Tong T. W. Real options in strategic management. Real Options Theory: Advances In Strategic Management (2007) 24(JAI Press, Greenwich, CT) 3–28CrossrefGoogle Scholar
  • Tong T. W., Reuer J. J., Peng M. W. International joint ventures and the value of growth options. Acad. Management J. (2008) 51(5):1014–1029CrossrefGoogle Scholar
  • Triantis G. G. Review: Financial contract design in the world of venture capital. Univ. Chicago Law Rev. (2001) 68(1):305–322CrossrefGoogle Scholar
  • Trigeorgis L. Real options and interactions with financial flexibility. Financial Management (1993) 22(3):202–224CrossrefGoogle Scholar
  • Trigeorgis L.Real Options: Managerial Flexibility and Strategy in Resource Allocation (1996) (MIT Press, Cambridge, MA) Google Scholar
  • Van de Ven W. P. M. M., Van Pragg B. M. S. The demand for deductibles in private health insurance: A probit model with sample selection. J. Econometrics (1981) 17(2):229–252CrossrefGoogle Scholar
  • van de Vrande V., Lemmens C., Vanhaverbeke W. Choosing governance modes for external technology sourcing. R&D Management (2006) 36(3):346–363CrossrefGoogle Scholar
  • Vanhaverbeke W., Duysters G., Noorderhaven N. External technology sourcing through alliances or acquisitions: An analysis of the application-specific integrated circuits industry. Organ. Sci. (2002) 13(6):714–733LinkGoogle Scholar
  • Vicente-Lorente J. D. Specificity and opacity as resource-based determinants of capital structure: Evidence for Spanish manufacturing firms. Strategic Management J. (2001) 22(2):157–177CrossrefGoogle Scholar
  • Villalonga B., McGahan A. M. The choice among acquisitions, alliances, and divestitures. Strategic Management J. (2005) 26(13):1183–1208CrossrefGoogle Scholar
  • Wadhwa A., Kotha S. B. Knowledge creation through external venturing: Evidence from the telecommunications equipment manufacturing industry. Acad. Management J. (2006) 49(4):819–835CrossrefGoogle Scholar
  • Wang L., Zajac E. J. Alliance or acquisition? A dyadic perspective on interfirm resource combinations. Strategic Management J. (2007) 28(13):1291–1317CrossrefGoogle Scholar
  • Williamson O. E.The Economic Institutions of Capitalism (1985) (Free Press, New York) Google Scholar
  • Williamson O. E. Corporate finance and corporate governance. J. Finance (1988) 43(3):567–591CrossrefGoogle Scholar
  • Zelner B. A. Using simulation to interpret results from logit, probit, and other nonlinear models. Strategic Management J. (2009) 30(12):1335–1348CrossrefGoogle Scholar
INFORMS site uses cookies to store information on your computer. Some are essential to make our site work; Others help us improve the user experience. By using this site, you consent to the placement of these cookies. Please read our Privacy Statement to learn more.