Optimal Failure Tolerance in Pakistani Corporate Venture Portfolios: Patent Output versus Investor Scrutiny

Abstract

This article analyses the relationship between level of failure tolerance of venture portfolio of the companies with patent output in the case of companies in Pakistan. In particular, it evaluates the effect of investor attention on patent creation, the most crucial sign of innovation, in corporate ventures. Investor supervision is an essential factor to ensure that there is a balance between risk management and promotion of innovation, especially in emerging economies such as Pakistan. It is an archival, cross-sectional research analysis based on the quantitative research of Pakistani corporate ventures engaging in patenting activity between 2016 and 2021. The study examines the role of investor attention volatility in affecting patent output, that is, specifically how tolerance of a corporate portfolio to failure effects patent output. The research examined 100 company ventures in a number of industries. The analyzing variables were the investor reports and governance structures to determine the degree of investor scrutiny and the portfolio diversification and risk-adjusted returns to measure the tolerance of losses. The methodology carried out regression analysis to statistically test the correlation value between failure tolerance and patent output. The results show that failure tolerance has a positive relationship with patent output but investor scrutiny comes in between them. The result of increased level of scrutiny is reduced tolerance to failure which, in turn, decreases the level of patent production in the corporations. The research reveals the significance of the optimal interaction between the investor interest and the level of permitting failure especially in other markets. Innovation can be encouraged by tolerance of failure, and failure due diligence can limit the act of risk-taking and depress the level of patent corporate venture.