This paper provides a systematic assessment of how entrepreneurs react to firmfailure. We use appraisal theory as an overarching theoretical framework andhypothesize that the more the failure experience is appraised as stressful interms of its implications for harm or loss, the greater the feelings of grief. Totest this hypothesis we developed a unique database of entrepreneurs whorecently filed for firm bankruptcy. Our results support that there is greatvariation in responses to firm failure, and we provide theoretically validexplanations to why this is the case. These findings have substantialimplications for how scholars conceive and theorize about entrepreneurialfailure.

Using the transactional model of stress and coping developed by Lazarus and colleagues as an overarching theoretical framework, this paper investigates the mediating role coping plays in re-entry into self-employment and emotional recovery after firm failure. I hypothesize that the psychological and financial costs of firm failure influence the relative use of different coping strategies. In turn, the choice of coping strategies influences re-entry into self-employment and emotional recovery. To test these hypotheses, I developed a unique longitudinal database of entrepreneurs who recently filed for firm bankruptcy. The findings largely support the hypothesized relationships. The findings contribute to the emerging stream of literature on entrepreneurial failure and the habitual entrepreneurship literature by providing insights into the role of coping after firm failure.

This study draws on attribution theory (Weiner, 1985, 1986) and experiential learning theory (Argyris, 1976; Kolb, 1984) to explain the interdependencies among attributions, learning, and motivation to re-enter self-employment after firm failure. The hypotheses are tested using a unique sample of 122 Swedish entrepreneurs who had recently experienced firm failure and filed for firm bankruptcy. The results suggest that attributions for the causes of failure influence the types of knowledge and skills entrepreneurs gain from failure experiences. In turn, the nature of what is learned can influence entrepreneurial motivation. The results suggest that there are two types of entrepreneurs who are motivated to re-enter self-employment after experiencing firm failure— those who potentially learn the most and those who  potentially learn the least.

We use human capital theory to investigate how entrepreneurs frame the decision to re-enter self-employment after experiencing firm failure. We suggest that in the context of re-entry individuals have valuable information regarding the return on their human capital in self-employment and factor this into their decision making. We develop hypotheses that incorporate this reduction in uncertainty regarding the returns to human capital in self-employment for predicting the likelihood that an individual re-enters self-employment after experiencing firm failure. We explain our results using human capital theory and prospect theory and suggest that there are two types of entrepreneurs who re-enter after experiencing firm failure: those who make an informed choice based on the return on their human capital in self-employment and those who take the chance to “win back” prior losses.