Long Run Efects of Venture Capital and Angel Investment on Job Creation in Kenya:

A System Generalised Method of Moments Approach

Abstract

Understanding persistent employment effects of entrepreneurial financing in emerging economies remains a central concern in entrepreneurship and development finance research. Prior evidence majorly treats finance as static and overlooks variation in employment outcomes across firms and over time. This study examines long term effects of venture capital and angel investment on job creation in Kenya while assessing the moderating role of executives’ financial backgrounds. The analysis covers firms receiving external financing between 2015 and 2023 and uses unbalanced panel data with 33,190 observations. Diagnostic tests confirmed stationarity, low multicollinearity, and model adequacy. Fixed effects estimation controlled for unobserved firm heterogeneity, while System Generalized Method of Moments addressed endogeneity and employment persistence. Results show that both venture capital and angel investment significantly increase employment, though effects differ in magnitude. Controlling for persistence, venture capital generates stronger employment growth compared to angel investment. Executive financial background significantly strengthens these relationships. In profitable firms, venture capital generates more jobs compared to angel investment’s jobs per million Kenyan shillings. Non profitable firms benefit less, with venture capital creating more jobs than angel investment per million Kenyan shillings due to liquidity constraints alone. The results show that leadership capability is important in leveraging external funding for employment growth. Executive-level financial skills act as active enablers rather than mere controls. The study contributes to literature by linking managerial capability to the effectiveness of entrepreneurial financing.