Research on Decision Making of Corporate Venturing Investments
Date Issued
2007
Date
2007
Author(s)
Lin, Shu-Jou
DOI
en-US
Abstract
Rapid technology change and increasing competition brings up a great amount of uncertainty to established firms in their pursuit of sustainable competitive advantages. Constantly monitoring these uncertainties and proactively exploring new opportunities of value creation become imperative to their achievement of continuous growth. Corporate venturing is such an activity performed by incumbents as a technology search vehicle. Accordingly, the dissertation focuses on this strategic activity attractive to both practitioners and academia and explores how firms make their corporate venturing investment decisions. For investigating this research inquiry, we mainly draw on the escalating commitment perspective and bring in real options reasoning perspectives to serve as complementary lens. In the following, we will provide a brief sketch on the two studies included in this dissertation.
The first study presents in chapter 3, we focus on the subsequent investment decisions regarding corporate venturing projects. This study investigates the impact of managers’ cognitive bias on corporate venturing investment decisions with a particular focus on a firm’s escalation of commitment to a losing course of action. Specifically, based upon three sources of cognitive bias, namely, sunk costs, illusion of control and self-justification, this study identifies antecedents of the escalation behavior. Our longitudinal empirical analyses, based on corporate venturing investments made by listed Taiwanese IT companies, shows that sunk costs, the number of initial public offerings by the firm in previous years, disclosure of investment performance and whether the firm joined the initial funding of the new venture are positively correlated to a firm’s escalating commitment to an investment with a mild negative feedback. When severe negative feedback is encountered, however, the impact of these antecedents is alleviated or even disappears. Implications to managers and suggestions for future research are also discussed.
The second study presents in Chapter 4 addressing how a firm makes its sequential investment decisions under uncertainty within an corporate venturing project. Based on two theoretical perspectives of decision making, real options reasoning and escalating commitment, we argue that decision makers tend to rely upon both external and internal sources of signal as decision references to take their sequential move in order to cope with embedded uncertainty. We therefore postulate a conceptual framework encompassing these two angles and suggest that both external signals, including expected market growth and peer group firm’s action and internal signals including negative feedback, sunk costs and past investment performance of the investing company would influence a firm’s subsequent investment decisions. To evaluate these hypotheses, we propose an econometric analysis within the context of corporate venturing investments made by Taiwanese IT hardware manufacturers. Furthermore, we examine the relationship between a firm’s strategic orientation and its adoption of differential decision perspectives.
From these two studies, we can advance our understanding of commitment escalation by refining the theoretical boundary and contrasting it with other perspectives. We identified severeness of negative feedback as a significant contingency that can nullify the influence of cognitive heuristics. We also identified that a firm’s cost orientation will reduce the influence from escalation bias. Another theory this dissertation attempts to contribute is real options reasoning. Our study suggests decision makers do either intuitively or explicitly use ROR when making investment choices under uncertainty. Furthermore, a firm’s strategic orientation (i.e., the emphasis on cost or differentiation) will moderate managers’ inclination of adopting ROR when making strategic decisions. This dissertation research also hopes to make contribution to the emerging literature of corporate venturing investments as well. We scrutinize the subsequent investment decisions made by the investing firm and also explore the performance impact on parent firms. By doing so, we may advance our understanding of the CVI decision process through providing a somewhat holistic picture of CVI activities.
Overall, on the more general level than we previously pointed, through these two studies, we try to enhance our understanding regarding the impact of uncertainty on a firm’s decision making regarding subsequent investment. This effort enables us to provide managerial suggestions for firms to cope with uncertainty and sustain their future growth.
Subjects
策略性投資
企業興業投資
決策過程
承諾續擴
實質選擇權觀點
Strategic Decision Making
Corporate Venturing
Decision Process
Escalating Commitment
Real Options Perspective
Type
thesis
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