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

59 Pages Posted: 22 Feb 2021 Last revised: 20 Jan 2023

See all articles by Santanu Kundu

Santanu Kundu

University of Mannheim, Finance area

Clemens Mueller

Erasmus University Rotterdam (EUR)

Date Written: January 20, 2023

Abstract

We link data on angel investors in the US to their employment history and show that employers’ innovation output decreases when their employees personally invest in start-ups. Our evidence is consistent with agency conflicts as the reason for lower innovation output. Angel investors divert time and effort from their employer to their personal investments. The effects are more pronounced when angel investments offer stronger financial incentives. In contrast, start-ups benefit from financing by angel investors employed at public firms. We highlight a trade-off between the benefits of angel investors for start-ups and the costs for their employer.

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 (January 20, 2023). 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)

Erasmus University Rotterdam (EUR) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

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