The relationship between portfolio diversification and firm value: The evidence from corporate venture capital activity
Article first published online: 8 NOV 2013
Copyright © 2013 John Wiley & Sons, Ltd.
Strategic Management Journal
How to Cite
Yang, Y., Narayanan, V. K. and De Carolis, D. M. (2013), The relationship between portfolio diversification and firm value: The evidence from corporate venture capital activity. Strat. Mgmt. J.. doi: 10.1002/smj.2190
- Article first published online: 8 NOV 2013
- Accepted manuscript online: 19 SEP 2013 09:24AM EST
- Manuscript Revised: 12 SEP 2013
- Manuscript Accepted: 23 AUG 2013
- Manuscript Received: 16 JUL 2012
- NNSFC (National Natural Science Foundation of China). Grant Number: 71272110
- corporate venture capital;
- 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. Copyright © 2013 John Wiley & Sons, Ltd.