Research on decision-making mechanisms of entrepreneurial reentry after entrepreneurial failure

Due to the high failure rate of entrepreneurship, most entrepreneurs are faced with decisions of whether to reenter into entrepreneurship after entrepreneurial failure or not. A thorough understanding of the underlying decision-making mechanisms (i.e., identify the main influencing factors, and analyze how these factors affect entrepreneurial reentry decisions after failure) is a prerequisite for entrepreneurs to make wise and rational reentry decisions after entrepreneurial failure. From a process perspective and a multilevel perspective, this thesis identifies four research limitations of the current research and addresses them by conducting four studies.

From a process perspective, the first and second studies focus on before-failure factors and after-failure factors, respectively. From a multilevel perspective, the third and fourth studies focus on individual/micro-level factors and institutional/macro-level factors, respectively. The main contents of this thesis are as follows:

(1) Chapter three (study 1): This chapter reveals the nature of entrepreneurial failure experience using a before-failure factor—opportunity innovativeness of failed business, and explores its effects on entrepreneurial reentry decision after entrepreneurial failure. This study finds that a more innovative opportunity of failed business leads to more opportunities identified from the failed business, which in turn facilitates entrepreneurial reentry after failure. This study also finds that entrepreneurs’ information acquisition capability (i.e., active information search) and information processing capability (i.e., education) enhance the positive effect that opportunity innovativeness of failed business has on opportunity identification from the failed business.

(2) Chapter four (study 2): This chapter explores the effect of entrepreneurs’ handling activities of failed business after entrepreneurial failure (i.e., bankruptcy) on entrepreneurial reentry decision, and the boundary conditions. This study proposes that the duration of bankruptcy can be regarded as a period for entrepreneurs to accept, recover from, and learn from failure. This study finds that the longer duration of bankruptcy is, the more likely the entrepreneurs are to make reentry decisions after the termination of bankruptcy. However, when the bankrupt firm has a larger scale of registered capital and a top management team, the positive effect of bankruptcy duration is weakened.

(3) Chapter five (study 3): This chapter explores the underlying mechanisms of how entrepreneurs’ trait mindfulness affects entrepreneurial reentry decision after entrepreneurial failure at the individual/micro level. This study finds that trait mindfulness affects reentry decision through both an emotional path (i.e., negative emotions over entrepreneurial failure) and a cognitive path (i.e., learning from entrepreneurial failure), and the emotional path can have an impact on the cognitive path.

(4) Chapter six (study 4): This chapter explores the effects of labor market flexibility and stigma of entrepreneurial failure on entrepreneurial reentry decision after entrepreneurial failure at the institutional/macro level. This study finds that the more flexible the labor market is and the lower the stigma of entrepreneurship failure is, the more likely the entrepreneurs are to make reentry decisions after entrepreneurial failure. In addition, compared with entrepreneurs with high entrepreneurial self-efficacy, entrepreneurs with low entrepreneurial self-efficacy are more likely to be influenced by stigma of entrepreneurial failure when making reentry decisions after entrepreneurial failure.

This thesis systematically explains the question of “why some entrepreneurs choose to reenter entrepreneurship after entrepreneurial failure, while others do not”. This thesis makes four theoretical contributions. First, this thesis (study 1) contributes to the research on the relationship between the nature of entrepreneurial failure experience and entrepreneurial decision-making by investigating the role of one before-failure factor, while previous studies have emphasized the extent of entrepreneurial failure experience. Second, this thesis (study 2) focuses on the role of bankruptcy at the micro level, which is a more fine-grained exploration of and complements the role of bankruptcy law or bankruptcy institutions at the macro level. This thesis helps reconcile the inconsistency of prior studies on the role of bankruptcy duration, and helps scholars better understand the role of bankruptcy in entrepreneurship. Third, this thesis (study 3) constructs a model combining the emotional response (i.e., negative emotions over entrepreneurial failure) and cognitive response (i.e., learning from entrepreneurial failure), and reveals the complex mechanisms underlying entrepreneurial reentry decision after entrepreneurial failure. By investigating an individual attribute that is amenable to training, this research complements the existing research that focuses on individual differences that is difficult to be changed by intervention. Fourth, this thesis (study 4) contributes to the research on the relationship between institutions and entrepreneurial reentry decisions after entrepreneurial failure, and extends the applicability of microfoundations of institutional theory to the context of entrepreneurial reentry decision after entrepreneurial failure.

This thesis has the following practical implications for entrepreneurs and policy-makers. For entrepreneurs: First, this thesis provides guidance for entrepreneurs to identify new business opportunities from entrepreneurial failure experience. And it also encourages entrepreneurs to pursue innovative entrepreneurial opportunities and be well-prepared (e.g., for entrepreneurial failure). Second, this thesis inspires entrepreneurs to cautiously file for bankruptcy to handle failed businesses. Entrepreneurs are suggested to consider the characteristics of failed business when filing for bankruptcy. Third, this thesis provides useful guidance (e.g., by improving trait mindfulness through mindfulness training) for entrepreneurs to reduce negative emotions over entrepreneurial failure, and enhance learning from entrepreneurial failure, which in turn contributes to more rational reentry decisions. For policy-makers, this thesis suggests that policy-makers can optimize the allocation of entrepreneurial resources by improving the labor market institutions and controlling the stigma of entrepreneurial failure.