Regulatory focus and new venture performance: A study of entrepreneurial opportunity exploitation under conditions of risk versus uncertainty

Abstract

AbstractResearch on cognitive fit suggests that entrepreneurs will be most successful at leading their firms when approaching the entrepreneurial process through the self‐regulatory mode that most closely matches the requirements of their environment and its accompanying perspective on the nature of entrepreneurial opportunities. Consistent with the discovery view of entrepreneurial opportunities, it is suggested that a prevention focus will be the most effective self‐regulatory mode for entrepreneurs leading their firms within stable industry environments, which are characterized by risk. Building from the creation view of entrepreneurial opportunities, it is argued that a promotion focus will be the most effective self‐regulatory mode for entrepreneurs leading their firms within dynamic industry environments, which are characterized by uncertainty. These arguments are tested using a national (United States) random sample of 201 lead entrepreneurs. The findings indicate that in dynamic environments, entrepreneurs' promotion focus is positively associated with venture performance (i.e., lagged measures of revenue and employment growth), while entrepreneurs' prevention focus is negatively related to performance in such environments. In both cases, these effects are found to be fully mediated by deviation from firms' original business concepts. In stable environments, however, no significant relationships between entrepreneurs' promotion or prevention focus and new venture performance were observed. These results suggest that low cognitive fit (a mismatch between entrepreneurs' mode of self‐regulation and the decision‐making context in which they operate) is more damaging in dynamic environments (i.e., a context of uncertainty) than in stable environments (i.e., a context of risk). Copyright © 2009 Strategic Management Society.