Corporate Venture Capital and Firm Scope

This paper studies whether and how corporate venture capital (CVC) spurs changes in firm scope. Using two sets of firm scope metrics, a text-based emerging business measure and Compustat segment measures, I document that CVC investments are strongly associated with subsequent firm scope changes of the CVC corporate parent, including seeding emerging businesses, establishing new divisions, terminating obsolete divisions, and changing the primary industry. Further evidence is consistent with an experimentation view of CVC investments, with more promising ventures having a stronger impact on the scope change of parent firms. Finally, to sharpen the causality, I explore the idiosyncratic fund inflow shocks of those connected independent VCs in each CVC program, as well as the US non-stop airline routes.