Improving the synergy between corporate venture capital and internal innovation: Role of implementation strategy and firm digitalization

Established firms often pursue technology and growth opportunities by investing in startups through corporate venture capital (CVC), which has a complex impact on their internal R&D activities. CVC, operating across organizational boundaries, needs to address two critical issues: external search and internal integration. However, it is driven by two incongruent institutional logics: ‘integrated’ and ‘arm's-length,’ which influence the effectiveness of the strategy implementation and its' synergistic effects on internal innovation. Using data from Chinese publicly listed firms between 2005 and 2020, our quadratic regression models with panel data reveal an inverted-U relationship between CVC intensity and internal R&D efforts. Such a relationship is more salient for less knowledge-intensive firms, smaller firms, and non-state-owned enterprises. Furthermore, the effectiveness of this activity is greatly conditioned on its implementation and the firm's technological capabilities. We find that strategic measures such as appointing senior managers to oversee CVC activities, establishing multiple CVC units, and advancing digitalization can amplify the positive effects of CVC on R&D. Our research sheds light on how CVC strategy implementation and digitalization can improve the synergy between external knowledge exploration and internal innovation.