The Importance of Being Optimistic in Times of Crisis

A STUDY ON 1,642 BRITISH FIRMS HIGHLIGHTS THAT OPTIMISTIC ENTREPRENEURS IMPLEMENTED MORE INNOVATION AND MORE ORGANIZATIONAL CHANGE THAN THE REST DURING THE COVID SPRING LOCKDOWN

In a pandemic, optimistic entrepreneurs’ proactivity weathers their tendency to fail to interpret negative signals, making them more likely to engage in both product innovation and organizational changes, research by Mario Daniele Amore on the reaction of 1,642 British firms to the COVID crisis concludes.
 
“The paper shows that a psychological trait such as dispositional optimism is an important driver of the heterogeneity in the reaction of entrepreneurs to the COVID crisis,” says Amore, an Associate Professor at Bocconi Department of Management and Technology.
 
 
The research team, including Orsola Garofalo (Copenhagen Business School) and Victor Martin-Sanchez (King’s College London), observed a 37% revenue drop among their sample firms during the spring lockdown. Many entrepreneurs made significant steps to attenuate the impact of the pandemic on their business. In particular, 30% of them made product or process innovation, whereas 25% made organizational changes, such as the introduction of more flexibility on the workplace. However, there are large variations in the likelihood of undertaking these actions.
 
Dispositional optimism can be defined as a general expectation that more good things, rather than bad, will happen in the future and can be measured through standard tests that the authors administered to the entrepreneurs in the sample through an online survey. The likelihood of engaging in product innovation and organizational change is, respectively, 7 and 5 percentage points higher for entrepreneurs classified as highly-optimistic. These differences with the rest of the sample are large and significant, and do not depend on individual variables such as age and education, nor business characteristics such as size or industry.
 
Optimistic entrepreneurs also display better financial performance, with revenue dropping ca. 8 percentage points less than the full sample. While it is challenging to interpret this evidence as causal, the general message surfacing from the study is that entrepreneurial optimism is clearly associated with actions that facilitated business recovery during Covid-19.
 
“The management literature has highlighted both pros and cons of optimism for entrepreneurs. With this study we show that optimism prompts a stronger reaction to a crisis,” Professor Amore concludes.
 
Mario Daniele Amore, Orsola Garofalo, Victor Martin-Sanchez, “The Relationship between Dispositional Optimism and Business Recovery during the COVID-19 Pandemic.” Available at SSRN. DOI: 10.2139/ssrn.3733757.

by Fabio Todesco