The effect of green startup investments on incumbents’ green innovation output

Abstract

Green innovation is essential to green transformation. Incumbents possess the resources to exploit these green innovations and establish them on the market, while startups typically explore the underlying technology in the first place. Drawing on the notion of absorptive capacity, it is argued that corporate venture capital (CVC) allows incumbents to tap into valuable external knowledge of green startups, thus being a fruitful vehicle to increase their internal green innovation output. To empirically test the model, a panel dataset of 1,568 firm-year observations of U.S. firms from 2000 to 2018 is used. The authors find empirical support that CVC investments in green startups are associated with increased green patent applications of the parent firm, thus allowing researchers and practitioners better to assess startups’ sustainability impact across firm boundaries. The study contributes to the green entrepreneurship literature by enriching the understanding of the distinct roles of incumbents and startups and their joint interplay in the green transformation of markets.