The role of affect in entrepreneurial orientation

Affect is the extent to which someone subjectively experiences positive or negative feelings and emotions, resulting in positive or negative affect (Watson et al. 1988). High positive affect is associated with “high energy, full concentration, and pleasurable engagement,” whereas low positive affect is associated with “sadness and lethargy” (Watson et al. 1988, p. 1063). Conversely, high negative affect is associated with “anger, contempt, disgust, guilt, fear, and nervousness,” whereas low negative affect is associated with “calmness and serenity” (Watson et al. 1988, p. 1063). Affect can be defined over various time frames. Feelings and emotions experienced in general are referred to as trait affect, whereas feelings and emotions experienced at this moment are referred to as state affect. Watson et al. (1988) developed a reliable, valid, and efficient scale for measuring positive and negative affect when considering the various time frames—the positive and negative affect scale (PANAS). The reliability of the PANAS was tested over a period of 2 months and proved high, independent of the chosen time frame. In the present study, we will focus on trait affect.

Many studies associating affect with entrepreneurship focus on either positive or negative affect (Delgado García et al. 2015). However, positive affect and negative affect are independent concepts (Watson et al. 1988). Hence, investigating one of them does not imply the result for the other. In other words, a positive association between positive affect and an outcome measure does not imply a similar but negative association between negative affect and the same outcome measure. Therefore, in the present study, we focus on both positive affect and negative affect and treat them as separate concepts.

Different types of strategic postures or orientations exist, such as entrepreneurial orientation and market orientation (Boso et al. 2013). Covin and Slevin (1989) define strategic posture as “a firm’s overall competitive orientation” (p. 77). In the present paper, we focus on entrepreneurial orientation, which can be defined as “the strategy making processes that provide organizations with a basis for entrepreneurial decisions and actions” (Rauch et al. 2009, p. 763). In other words, entrepreneurial orientation indicates the degree of entrepreneurship in a firm’s strategic posture (Lumpkin and Dess 1996). Entrepreneurial orientation can be captured by three dimensions: innovativeness, proactiveness, and risk taking (Miller 1983). However, the scale for measuring entrepreneurial orientation (Covin and Slevin 1989) is unidimensional with a high factorial validity such that it is also appropriate to combine all three dimensions in a single scale.

Entrepreneurial orientation is usually measured at the firm level. In addition to firm entrepreneurial orientation, another type of entrepreneurial orientation exists—individual entrepreneurial orientation (Langkamp Bolton and Lane 2012). According to the upper echelon theory, organizational outcomes are predicted by managerial characteristics (Hambrick and Mason 1984). Thus, not only firm-specific traits but also individual-specific traits lead to firm decisions. Hence, for sole proprietors, individual entrepreneurial orientation is now deemed an appropriate concept.

Entrepreneurial orientation has an effect on entrepreneurial success (Rauch et al. 2009; Wiklund et al. 2009; Wiklund and Shepherd 2003, 2005). For this reason, one of the aims of entrepreneurship studies is to investigate its drivers, of which several have been identified. For instance, Khedhaouria et al. (2015) mention creativity and Avlonitis and Salavou’s (2007) study of SME owners shows a clear association between innovation and entrepreneurial orientation. Simsek et al.’s (2010) work shows that CEO personalities reflecting higher core self-evaluations have a stronger positive influence on firms’ entrepreneurial orientation, particularly for firms facing dynamic (rather than stable) environments. Similarly, Chatterjee and Hambrick (2007) found CEO narcissism to play a role in both strategic posture and firm performance. Overconfidence of CEOs has also been shown to play a role in firm entrepreneurial orientation (Engelen et al. 2015) because such CEOs feel more in control, consider themselves to be better than others in successfully completing challenging tasks, and are more likely to depart from established practices to pursue new opportunities (Hayward et al. 2006). Because entrepreneurial orientation is an important concept in the entrepreneurship literature and different scholarly studies have hinted that affect could play a role in it (Baron 2008; Delgado García et al. 2015; Hahn et al. 2012), we investigate the role affect plays in entrepreneurial orientation in the present paper.

The recent and rapid development of the affect-entrepreneurship literature has yielded several results. For instance, Baron’s (2008) theoretical framework indicates the important role played by positive and negative affect in entrepreneurship via opportunity recognition, acquisition of financial and human resources, development of broad social networks, capacity to respond effectively to highly dynamic environments, and tolerance for intense levels of stress. Baron’s work serves as an excellent starting point for further research. For instance, affect has been associated with innovation in business (Baron and Tang 2011; Baron et al. 2011; Rutherford and Holt 2007). Affect has also been associated with level of effort, personal initiative and persistence, propensity to continue investments in an underperforming project, types of goals set (Delgado García et al. 2012), performance and attitude (Baron 1990), and creativity (Isen et al. 1987). However, we appear to be lacking in work that focuses on affect and entrepreneurial orientation.

Furthermore, most studies investigating the role of affect in entrepreneurship focus on either positive or negative affect. For instance, positive affect has been found to be positively associated with firm performance (Baron et al. 2011), attitude (Baron 1990), and individual innovativeness in mid-sized organizations (Baron and Tang 2011; Rutherford and Holt 2007). However, what appears surprising is that none of the above-mentioned studies considers negative affect. Studies that investigate negative emotions have shown that they play a role in moving forward after project failure (Shepherd et al. 2011) or in social processes of entrepreneurship (Doern and Goss 2014). However, these latter studies do not consider positive affect.

Studies that have investigated both the bright and dark side of feelings and emotions have used concepts such as passion (Cardon and Kirk 2015), affective well-being (Hahn et al. 2012), and emotion (Brundin and Gustafsson 2013; Grichnik et al. 2010) instead of affect. Studies investigating the role of both positive and negative affect in entrepreneurship are scarce. As mentioned earlier, Baron’s (2008) conceptual paper indicated that both positive and negative affect influence the entrepreneurial process. Foo et al.’s (2008) empirical work showed that both positive and negative affect positively influences venture effort, whereas negative affect is only related to the immediately required effort for the venture. Positive and negative affect have also been empirically shown to be associated with positive orientation toward personal goal realization (consisting of the subscales self-esteem, life satisfaction, and optimism) in entrepreneurs (Laguna et al. 2016). Thus, although affect, a prominent psychological construct (Watson et al. 1988), appears to be playing an important role in entrepreneurship (Baron 2008; Delgado García et al. 2015; Hahn et al. 2012), we are not aware of any empirical study that has investigated the role of affect in entrepreneurial orientation.

Summarizing the literature reviewed above, we can conclude that positive affect positively influences (firm-specific) characteristics such as the entrepreneurial process (Baron 2008) and innovation (Baron and Tang 2011; Rutherford and Holt 2007), which are positively associated with entrepreneurial orientation (Avlonitis and Salavou 2007), and personal goal orientation (Laguna et al. 2016). Conversely, negative affect negatively influences the entrepreneurial process (Baron 2008) and personal goal orientation (Laguna et al. 2016). However, it is not clear whether or how affect is associated with entrepreneurial orientation (Rauch et al. 2009; Wiklund et al. 2009; Wiklund and Shepherd 2005). Therefore, the present paper investigates the direct link between affect and entrepreneurial orientation to supplement the indirect and scattered evidence that this link may exist.

Before we formulate our hypotheses, we want to make one more remark about the affect-as-information mechanism (Clore et al. 2001), which suggests that judgments and decisions are based on affect. For instance, when one experiences positive affect, his or her judgments are more positive. This observation holds even when the affect one experiences is not related to the judged object or decision. Hence, according to the affect-as-information mechanism, positive affect could lead to positive decision-making or strategy.

Based on the indications of prior studies and the affect-as-information mechanism, we expect a positive association between positive affect and entrepreneurial orientation and a negative association between negative affect and entrepreneurial orientation. Hence, we hypothesize that

To obtain a deeper understanding of the role of affect in entrepreneurial orientation, we distinguish its role on the three dimensions of entrepreneurial orientation, i.e., innovativeness, proactiveness, and risk taking. It is possible that the association between affect and entrepreneurial orientation is driven by one of these dimensions. For instance, there is stronger evidence in the literature of the association between affect and innovativeness or risk taking than between affect and proactiveness (Mittal and Ross Jr 1998; Rutherford and Holt 2007). Positive affect was found to be associated with individual innovativeness in the field of corporate entrepreneurship using a sample of mid-sized organizations (Rutherford and Holt 2007), and with firm-level innovation (Baron and Tang 2011). Furthermore, Isen and Geva (1987) showed that induced positive affect leads to higher risk taking when stakes are high, but to being more risk prone when stakes are low. Mittal and Ross Jr (1998) showed that MBA students with a positive mood (compared with those with a negative mood) displayed lower levels of risk taking. Positive affect has been shown to induce active work attitude toward new goals, the latter being similar to a proactive attitude (Lyubomirsky et al. 2005). Due to the possibility of different associations between affect and the three dimensions of entrepreneurial orientation, we also tested our hypotheses 1 and 2 for each of these three dimensions.

We have further enriched our main model by including entrepreneurial success (see Fig. 1) leading to two additional goals. It helps us to analyze the role of affect in entrepreneurial success and it allows us to analyze the role of entrepreneurial orientation in entrepreneurial success. Several studies serve as a rationale for investigating these associations. For instance, with respect to the affect-entrepreneurial success association, studies show that (environmentally induced) dispositional positive affect is positively associated with firm performance (Baron 1990), but after a certain point, higher dispositional positive affect could lead to a decline in firm performance (Baron et al. 2011). Furthermore, positive affect has been associated with several dimensions of the Big Five, which in turn impact entrepreneurial success. Specifically, studies show that positive affect is associated with extraversion (Shiota et al. 2006), whereas negative affect is associated with neuroticism (Costa and McCrae 1980; Gutiérrez et al. 2005). Positive affect has also been associated with openness to experience and conscientiousness (Roccas et al. 2002). Additionally, studies show that conscientiousness, openness to experience, and extraversion are positively associated with entrepreneurial performance, whereas neuroticism is negatively associated with entrepreneurial performance (Brandstätter 2011). Because positive affect is associated with conscientiousness, openness to experience, and extraversion, and given that these dimensions are associated with entrepreneurial performance, positive affect can also impact entrepreneurial performance. Similar reasoning holds for negative affect and entrepreneurial success; negative affect has been found to be associated with neuroticism, which has a negative effect on entrepreneurial performance. Taken together, negative affect may negatively impact entrepreneurial performance.

With respect to the entrepreneurial orientation-entrepreneurial success association, several studies point toward this association (Wiklund et al. 2009; Chatterjee and Hambrick 2007; Khedhaouria et al. 2015; Rauch et al. 2009; Wiklund and Shepherd 2005). Furthermore, different dimensions of entrepreneurial orientation have been shown to have different effects on SME performance (Kreiser et al. 2013). For instance, whereas innovativeness and proactiveness show a positive U-shape relationship with SME performance, risk taking shows a negative U-shape relationship.

Together with our two main hypotheses, the associations between affect-entrepreneurial orientation and entrepreneurial success suggest the possibility that entrepreneurial orientation could play an indirect or mediating role in the association between affect and entrepreneurial success. Therefore, we also intend to investigate this mediation, which would contribute to the existing knowledge of entrepreneurial success. However, investigation of the association between affect and entrepreneurial success remains our secondary goal, because the main focus of our paper is to fill the affect-entrepreneurial orientation gap in the literature. We believe that such a focus is justified because it has not thus far been employed (in contrast to evidence that already exists concerning the role of affect in entrepreneurial success (Baron 1990; Baron et al. 2011)). Additionally, because entrepreneurial success is an immensely broad construct and latent in nature, it is difficult to validate measures for entrepreneurial success. This difficulty explains why our measure of entrepreneurial success is not validated.

The Panteia sample consisted of 851 Dutch sole proprietors. However, for this study, our sample consists of 337 sole proprietors. Panteia¹ used to be one of the largest market and policy research institutes in the Netherlands, maintaining a nationally representative panel of Dutch sole proprietors. The data were collected between December 2014 and January 2015²; however, the data on entrepreneurial orientation were collected in 2013. The fact that our data on entrepreneurial orientation were collected a year before collection of the data on affect does not affect the credibility of our results, because we examined trait affect, which is considered stable over time (Watson et al. 1988). The average age of the final 337 sole proprietors was 53 years, and 69% of them were male. A majority of them had obtained a university or higher education degree (58%), followed by those with secondary vocational education (21%).

The AMAROK sample consisted of 349 French small business owners and was collected by Observatoire AMAROK,³ partner of Montpellier Business School. AMAROK runs a panel of these owners with the primary goal of analyzing the health of entrepreneurs. The data were collected in the winter of 2015–2016. There are 254 individuals in the final sample because some small business owners exited the panel, and there were some incomplete observations. A plurality of these small business owners had 2 to 3 years of higher education or had obtained a Bachelor’s degree (37%); the second-largest group had 4 to 5 years of higher education or had obtained a Master’s degree (26%). Four percent owned a business of size 1 (i.e., these owners can be classified as sole proprietors), 25% fit the definition of a micro-sized business (fewer than 10 employees), 56% fit the definition of a small-sized business (10 to 49 employees), and the remaining 15% were medium-sized business with more than 50 employees. The average age of these small business owners was 50 years, and 80% of them were male.

To investigate the role of positive and negative affect in entrepreneurial orientation, we used linear regression models with entrepreneurial orientation as the dependent variable and both positive affect and negative affect, together with the controls, as independent variables. Positive affect and negative affect were assumed orthogonal, meaning that including them in one regression model did not cause a danger of multicollinearity. The coefficients of the regression models were estimated with ordinary least squares (OLS). To easily compare coefficients across the samples, we standardized all variables except gender. For our additional tests, we developed our model further. First, we analyzed our models by replacing entrepreneurial orientation with its different dimensions: innovativeness, proactiveness, and risk taking. Second, we analyzed our models by replacing entrepreneurial orientation with entrepreneurial success, and we added entrepreneurial orientation to our set of independent variables such that we could analyze the role of affect in entrepreneurial success (possibly indirectly through entrepreneurial orientation).

Moreover, to obtain a more thorough view of our main goal, the association between affect and entrepreneurial orientation, we repeated the analysis (with respect to entrepreneurial orientation) for a student sample (referred to as Woudestein). The motivation behind using this sample, a description of the sample, and the corresponding results are presented in Appendix 1.

The findings of the present study have several theoretical implications. First, the present study adds to our knowledge of the entrepreneurial profile (Gartner 1990). Specifically, it investigates the role of affect in entrepreneurship (Delgado García et al. 2015; Hahn et al. 2012). Our findings reveal that both positive and negative affect play different but significant roles in entrepreneurial orientation—and partly in entrepreneurial success—and thus qualify as drivers of entrepreneurial orientation and entrepreneurial success. Earlier studies have shown several other entrepreneurial characteristics to be associated with decision-making. For instance, in their review, Shepherd et al. (2015) elucidate how decision-making strategies can differ among entrepreneurs due to gender, national and cultural heritage, and differences in experience. The last enhances self-efficacy, leading to strategies that could be more aggressive and seemingly riskier. The Shepherd et al. (2015) review shows that risk and problem framing impact entrepreneurial decision-making. The work of Lawrence et al. (2008) shows that there is no difference in entrepreneurs and managers when they execute cold decision-making (i.e., risk-free decision-making), whereas entrepreneurs tend to take more risk in hot decision-making, (i.e., decision-making with risk involved). This higher risk taking among entrepreneurs is accompanied by enhanced impulsivity. Furthermore, Dew et al. (2009) show that problems are framed differently by expert entrepreneurs when compared with MBA students. Although expert entrepreneurs use “effectual” logic, students tend to go by the textbook. Hence, entrepreneurial decision-making is associated with gender, culture, risk taking, and problem framing. The present study adds affect to this list by emphasizing the importance of affect in the strategic posture and success of entrepreneurs.

Second, results of our study show the importance of investigating both positive affect and negative affect as separate concepts. We found no correlations between the two dimensions of affect, and the results differed in sign, strength, and significance. Although many studies have reported results of only one measure of affect (Baron and Tang 2011; Baron et al. 2011; Foo et al. 2008), our work shows the importance of investigating both.

Third, the present study contributes to the rationality debate, concerned with the rationality of individuals in (economic) decision-making, which has recently entered the field of entrepreneurship (Zhang and Cueto 2017). With the present study, we show that irrational characteristics, such as affect, could have an effect on (rational) strategic postures. The work of Smith et al. (1988) showing that an entrepreneur’s decision behavior follows a less formal and rational decision process than that of professional managers from a larger firm lends support to our results. Smith et al.’s (1988) study also showed that for both entrepreneurs and managers, decline in the degree of formality and rationality in the decision process lowered organizational performance.

From a practical point of view, the present study adds value to the understanding of how affect influences the degree of entrepreneurship in the strategic posture of sole proprietors and small business owners. For sole proprietors, trait positive affect implies a more entrepreneurial strategic posture in terms of innovativeness, proactiveness, and risk taking, whereas for small business owners, trait positive affect implies a more entrepreneurial strategic posture in terms of innovation. However, although for sole proprietors, negative affect is negatively associated with individual entrepreneurial orientation, for small business owners, negative affect does not impact their strategic posture. One could speculate that having other members in the organization buffers the negative affect of small business owners from influencing the firm’s strategic position negatively, because these other members also influence the firm’s strategy, either directly or indirectly (Quigley and Hambrick 2012). Because an appropriate strategic posture leads to higher performance in the business environment, this knowledge of the association between affect and entrepreneurial orientation can inform sole proprietors and small business owners on how to better run their business and can help future entrepreneurs make a deliberate choice on whether to start a business. Encouraging everyone to become an entrepreneur is not our message; only high-growth-potential enterprises are beneficial for the economy (Shane 2009). Finally, knowledge about the important link between affect and entrepreneurial orientation can also guide mental health intervention programs to help entrepreneurs unleash their full potential.

Our study has certain limitations, and at the same time, has opened an avenue for future research directions.

First, some may view using both individual and firm entrepreneurial orientation as a limitation. Indeed, one may be concerned about using two different measures and comparing their results. However, we believe that in this specific situation, the use of both individual entrepreneurial orientation and firm entrepreneurial orientation is appropriate. Several reasons guide our belief in this respect. First, the measure of entrepreneurial orientation fits the type of subjects we studied in our sample; whereas sole proprietors are individually responsible for their firm outcomes, small business owners are influenced by/influence their employees so that the firm-level outcome is a more appropriate measure. Second, although the items of the measures differ in their wording, they show similarity in the sub dimensions (innovativeness, proactiveness, and risk taking). Third, although one could argue that affect is an individual-level measure and hence cannot be associated with a firm-level concept such as entrepreneurial orientation, the upper echelon theory suggests that individual characteristics can predict organizational outcomes (Hambrick and Mason 1984).

Second, one may question the credibility of the results from the Panteia sample because two different temporal points were used when collecting the data. Nevertheless, we believe that our results are trustworthy for two reasons. First, we intentionally measured trait affect instead of state affect. Trait affect measures general affect, i.e., affect deeply embedded in a person. This deeper form of affect is more stable and is considered to remain the same over years. Second, the results of the Panteia sample are consistent with the results of the Woudestein (Appendix 1) and AMAROK samples, which provide confidence in our results.

Third, our measure of entrepreneurial success is not embedded in the literature, which could raise doubt about our results on entrepreneurial success. For this reason, we included multiple measures and multiple-item constructs. The constructs show high internal reliability and are therefore trustworthy. Additionally, results are in the expected direction. Nevertheless, the use of well-validated measures of entrepreneurial success in the future could lead to clearer (i.e., significant) results, because our results signal such a significance. The insignificant results for entrepreneurial success could also arise from the use of entrepreneurial orientation as one construct instead of using its dimensions. As mentioned by Kreiser et al. (2013), the different dimensions of entrepreneurial orientation can have different effects on entrepreneurial success. Hence, future studies should adopt well-validated measures of entrepreneurial success and investigate the relationship of entrepreneurial orientation and success through the three dimensions of entrepreneurial orientation.

Fourth, the well-known psychological concept of the Big Five could play a mediating role between affect and entrepreneurship for several reasons. First, the literature that shows the relationship between affect and the Big Five indicates that there is a positive association between positive affect and conscientiousness, extraversion, and openness to experience, and between negative affect and neuroticism (Costa and McCrae 1980; Gutiérrez et al. 2005; Roccas et al. 2002; Shiota et al. 2006). Second, with respect to the Big Five entrepreneurship literature, Zhao and Seibert (2006) have shown that entrepreneurs score higher than managers do on conscientiousness and openness to experience and lower on neuroticism and agreeableness. Similarly, Caliendo et al. (2014) show that entry into self-employment is positively impacted by extraversion and openness to experience. The Big Five further plays a role in entrepreneurial performance (Zhao et al. 2010); conscientiousness, extraversion, and openness to experience positively impact success, whereas neuroticism negatively impacts it. Finally, taking these two fields of literature together, we expect a positive association between positive affect and entrepreneurship (because both are positively associated with conscientiousness, extraversion, and openness to experience) and a negative association between negative affect and entrepreneurship (because both are negatively associated with neuroticism). Indeed, the present study shows positive associations between positive affect and entrepreneurial orientation and success and negative associations between negative affect and (some of) our entrepreneurship measures. One could go a step further and explicitly investigate the mediating role of the Big Five.

Our work does not claim to have identified any causality between affect and entrepreneurial orientation. On the one hand, feelings and emotions may influence strategy, but on the other hand, strategy can also lead to certain feelings and emotions, possibly through entrepreneurial success. Hence, we used the word “associations” throughout the paper. Although we cannot formally identify causality, we can surmise that the direction of affect to entrepreneurial orientation is a more reasonable direction, given that we investigated trait affect in two of the three samples. Trait affect is related to a general characteristic of a person and is a long-term concept. However, entrepreneurial orientation is more likely to change because the characteristics of the market, the product, the competitors, and the business themselves can change. Therefore, it is more conceivable that long-term affect influences dynamic strategic posture rather than a dynamic strategic posture influencing the long-term feelings and emotions of an entrepreneur. Nevertheless, we recommend future studies use experimental or panel data to obtain a clearer understanding of which of the two causal directions prevails.

Future studies may also want to focus on the measurement of the construct “affect.” First, the work of Feldman Barrett and Russell (1998) shows that affect consists of four dimensions—high activation positive affect, low activation positive affect, high activation negative affect, and low activation negative affect. Future studies replicating our work could use these four dimensions of affect, because studies suggest that the four dimensions of affect could be helpful to explain entrepreneurship (e.g., Williamson et al. (n.d.)). Second, a certain score on affect can impact the self-reported measures on other outcome measures. For instance, a higher score on positive affect may lead to a more entrepreneurial evaluation of the company, thus raising reporting bias. Hence, future studies should focus on a correction for over- or underestimation of the outcome measures for a certain measure of affect.