Family events and new venture survival: effects of positive and negative affect on entrepreneurs

Abstract

This paper investigates how family events impact founding entrepreneurs’ psychological affect during the new venture creation process and whether their ventures commenced before such events continue to be viable. We also explore the impact of the interaction of family events and overconfidence on new venture survival. We use panel data drawn from the Australian Household, Income and Labor Dynamics (HILDA) survey, focusing on non-venture related, family event-induced psychological affect that entrepreneurs may experience as a predictor of their new venture survival. Our accelerated failure time model results are consistent with past arguments in the social psychology literature, that ceteris parabis, positive events have a positive influence and negative events have a negative influence on survival. However, when entrepreneurial overconfidence is considered, although the interaction between negative family events and entrepreneur overconfidence spurs cautious behaviour to a small degree as anticipated, it is positive events interacting with overconfidence that makes the biggest impact (negative) on the new venture. The research contributes to our understanding of the embeddedness of family in the entrepreneurial process – specifically how major family events, such as the birth and death of a child and marriage and divorce, which seemingly have little or nothing to do with the new venture, can impact its survival. New founders experiencing a major family event(s) can be psychologically affected through their feelings, emotions and moods. The viability of the startups they helm depend on their ability to manage these stressors. It challenges past assumptions by revealing how positive family events can have comparatively greater negative impact on new venture survival than negative ones.