The Effect of the Foreignness of Corporate Venture Capitals on the Likelihood of a Venture Firm’s IPO

Purpose - Extant research indicates that CVC investments create value for venture firms and generally enhance the likelihood of a successful exit. However, prior research assumes CVCs are homogeneous. In particular, despite the globalization of CVC investments, the foreignness of CVC has been largely overlooked. Thus, this study explores the heterogeneity caused by the foreignness and governance structure of CVCs. Specifically, we argue that the foreignness of CVCs has a positive impact on the likelihood of venture firms going public, and it is weakened when CVCs have a tight structure. Design/Methodology - The hypotheses were tested with 1,874 high-technology venture firms in the U.S. funded by CVCs between 1994 and 2009. Heckman’s two-stage analysis was used to address potential selection bias. In the first stage, we employed a probit model to predict the probability of a venture firm receiving cross-border CVC investment. In the second stage, we conducted a probit regression analysis on the likelihood of IPO, incorporating the inverse Mills ratio to address selection bias. Findings - We found that the foreignness of CVCs increases the likelihood of a venture firm’s IPO. However, a tight structure of CVCs weakens this positive impact. Originality/value - This study highlights the benefits of cross-border CVC investments and enriches resource dependence theory by reconciling it with institutional theory, depicting the importance of reducing resource constraints to create value for venture firms and the institutional logic pursued by CVCs. This study suggests that entrepreneurs should be careful with CVCs that prioritize strategic objectives.