Psychological Determinants of Changing Industries after Entrepreneurial Failure

Abstract

This paper advances a psychological argument that extends explanations of entrepreneurs¡¯ response to failure. We explored narcissistic personality as a mechanism to understand why some entrepreneurs change industries after failure even though the cost of doing so might be high. Using both quantitative and qualitative data on entrepreneurs who had experienced failure in Beijing, Shanghai and Shenzhen in China, we found that narcissism had a positive relationship with industry change, consistent with the research finding that narcissists often do not learn from failure. We further observed that other-referent counterfactual thinking mediated the relationship between narcissism and industry change. We suggest that although narcissistic personality is not easy to change, entrepreneurs can change the way they think to control the negative impact of narcissism and to take advantage of their failure experience. Our results shed light on the studies of entrepreneurial failure.