Affect and Firm Performance

Affect has been described to predict a variety of firm performance indicators but at present, little is known which mechanism(s) underlie this relation. Studies have shown that affect influences entrepreneurial skills, which were also shown to influence some firm performance measures (e.g. Baron, 2008; Sharon, 2003). Yet, it was never empirically tested whether entrepreneurial skills mediate the affect-firm performance relationship. I hypothesize that affect predicts entrepreneurial skills, which in turn predict firm performance and that entrepreneurial skills significantly mediate the relationship between affect and firm performance. In the present study, firm performance is measured through two different indicators, current performance and growth performance. Using a sample of 228 Dutch-sole-proprietors, I find support for the mediating role of entrepreneurial skills. However, in contrast to previous studies, I do not find a significant influence of affect on firm performance, indicating that the influence is are rather indirect than direct. Results add to our understanding of how individual traits influence firm performance and imply economic benefits of promoting positive and reducing negative affect.