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Ms. Elisha Yu
Ph.D. Candidate in Accounting
SC Johnson College of Business
Cornell University

This study examines whether firms increase their investment in startup companies using Corporate Venture Capital (CVC) when firms 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 within industries with higher competition and firms with lower transient investor ownership. Subsequently, firms that make CVC investments during R&D-cutting and benchmark-beating years have superior innovation outcomes and better long-term performance compared to firms 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.