REAL EARNINGS MANAGEMENT AND INNOVATION EXTERNALIZATION: EVIDENCE FROM CORPORATE VENTURE CAPITAL
Access to this document is restricted. Some items have been embargoed at the request of the author, but will be made publicly available after the "No Access Until" date.
During the embargo period, you may request access to the item by clicking the link to the restricted file(s) and completing the request form. If we have contact information for a Cornell author, we will contact the author and request permission to provide access. If we do not have contact information for a Cornell author, or the author denies or does not respond to our inquiry, we will not be able to provide access. For more information, review our policies for restricted content.
This study examines whether firms increase their investment in startups using Corporate Venture Capital (CVC) when they reduce internal research and development (R&D) spending to meet short-term earnings targets. My findings suggest that firms are more likely to make CVC investments when they just meet or beat analysts’ earnings forecasts and have lower than predicted R&D expenses. The effect is particularly concentrated in firms with lower transient investor ownership, firms with long-term oriented CEOs, and firms with more exploitative innovation strategies. Subsequently, firms that make CVC investments during R&D-cutting and benchmark-beating years have superior innovation outcomes and better long-term performance than those that cut R&D but do not make CVC investments. My findings suggest that managers utilize CVC investments to mitigate the negative impacts of cutting internal R&D and highlight the importance of considering external innovation efforts in addition to internal R&D in future studies.