Angels and Demons: The Negative Effect of Employees' Angel Investments on Corporate Innovation

70 Pages Posted: 22 Feb 2021 Last revised: 22 Nov 2021

See all articles by Santanu Kundu

Santanu Kundu

University of Mannheim, Finance area

Clemens Mueller

University of Mannheim - Finance Area

Date Written: November 19, 2021

Abstract

When employees in publicly listed firms in the US personally invest in start-ups, a firm's innovation output decreases by 3% - 5%. We establish this finding exploiting novel data that links angel investors in the US to their employment history. These results are robust to various potential selection effects and omitted variables. The negative relationship is stronger when angel employees have more incentives to get involved in their investments. Start-ups financed by angel investors who are employed at listed firms are associated with higher future success compared to those financed by other angel investors. Overall, our results indicate that angel investors divert time and effort from their employers to their personal investments.

Keywords: Innovation, Angel Investors, Human Capital, Agency Conflicts, Distraction

JEL Classification: G24, G30, O30, O31, O32

Suggested Citation

Kundu, Santanu and Mueller, Clemens, Angels and Demons: The Negative Effect of Employees' Angel Investments on Corporate Innovation (November 19, 2021). Proceedings of Paris December 2021 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3746916 or http://dx.doi.org/10.2139/ssrn.3746916

Santanu Kundu

University of Mannheim, Finance area ( email )

Mannheim
Germany

Clemens Mueller (Contact Author)

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

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