Linking Corporate Entrepreneurship to Financial Theory through Additional Value Creation

By Vozikis, George S.; Bruton, Garry D. et al. | Entrepreneurship: Theory and Practice, Winter 1999 | Go to article overview
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Linking Corporate Entrepreneurship to Financial Theory through Additional Value Creation

Vozikis, George S., Bruton, Garry D., Prasad, Dev, Merikas, A. A., Entrepreneurship: Theory and Practice

The study of corporate entrepreneurship (CE) has principally used accounting measures to gauge a firm's CE activities, even though it has increasingly been recognized in entrepreneurial research that more appropriate, theory-based measures are required to provide an accurate picture of a firm's CE performance. This study links corporate entrepreneurship to financial theory by advancing additional value creation (AVC) as a better measure of performance for corporate entrepreneurship activities and based on the output of the firm, rather than the usual accounting measures that are input based.

In recent years, an increased emphasis has been placed on encouraging entrepreneurial activities in corporations (Gartner, 1988; Miller, 1983; Wortman, 1987). It is hoped that such endeavors will encourage the corporations to exhibit characteristics associated with the individual entrepreneur such as risk taking, innovativeness, and proactive pursuit of opportunities, commonly referred to as corporate entrepreneurship (CE).

Most investigations of CE have measured performance by relying solely on accounting measures adapted from the investigation of other entrepreneurial organizations (McGrath, Venkataraman, & MacMillan, 1992). But such measurement adaptations do not build on a theoretical rationale despite the growing recognition of the importance of appropriate theory-based measures to entrepreneurial research (Smith, Gannon, & Sapienza, 1989).

Corporations typically have publicly traded stock, whose value changes over time. The efficient market theory argues those changes are due to the fact that investors continuously evaluate all information when valuing a stock (Fama, 1974, 1991). Thus, if the market incorporates all information, measures should be derivable that include the characteristics of corporate entrepreneurship and allow for its evaluation. The applicability of this rationale has received wide acceptance (Brophy & Shulman, 1992).

The integration of finance theory and entrepreneurial research remains limited (Brophy & Shulman, 1992). Therefore, this paper will fill the gap on CE measurement by linking financial theory to the study of entrepreneurship in corporations through the development of a model of performance that employs such integration. Specifically, this model utilizes the concept of additional value creation and destruction to evaluate corporate entrepreneurial activities.


To date, the concept of corporate entrepreneurship has not been consistently defined (Zahra, 1991). For example, the terms "intrapreneurship" (Pinchot, 1985) and "corporate venturing" (Ellis & Taylor, 1987) have been used to describe activities similar to corporate entrepreneurship, while Birkinshaw (1997) defines CE as "an initiative of a discrete, proactive undertaking that advances a new way for the corporation to use or expand its resources." This definition is similar but less inclusive than Stevenson and Jarillo's (1990, p. 23) definition. They conducted an extensive review of the entrepreneurship literature in an effort to provide a paradigm to bridge entrepreneurship in small or start-up organizations and CE. Their definition of entrepreneurship was "a process by which individuals--either on their own or inside organizations--pursue opportunities without regard to the resources they currently control," and this definition forms the basis for this paper.

This definition recognizes that rather than representing any single activity in the corporation, entrepreneurship represents a set of organization-wide activities (Aitken, 1963). Jennings and Lumpkin (1989) supported such an analysis when they identified four organizational activities associated with CE. These activities include participative decision making, presence of specialized personnel, participative development of performance objectives, and risk taking by managers.

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