The downside of being 'up': entrepreneurs' dispositional positive affect and firm performance

Previous research indicates that dispositional positive affect (DPA) is related to many beneficial outcomes (e.g., enhanced career success, development of high‐quality social networks, improved performance on many tasks). Past research, however, has not directly investigated three crucial issues: (1) Are there limits to these beneficial effects? (2) Is dispositional positive affect related to firm performance as well as to individual entrepreneur performance? (3) Are the effects of entrepreneurs' DPA moderated by specific variables? The present study provides evidence relating to these issues. Findings indicate significant relationships between entrepreneurs' DPA and two measures of firm performance (product innovation and sales growth rate). However, there are indeed limits to these effects, such that beyond certain upper bounds, further increments in entrepreneurs' DPA are associated with declines in firm performance. These effects are moderated by firm size, such that the negative effects of entrepreneurs' DPA are stronger in small firms than in comparatively larger ones. Results contribute to the development of theory for understanding the role of entrepreneurs' affect in the entrepreneurial process. More generally, they contribute to ongoing efforts to understand how founding entrepreneurs influence the subsequent development and growth of their firms. Copyright © 2011 Strategic Management Society.