Offsetting the Diminishing Returns of Failure Experience: The Role of Emotion Regulation.

Failure represents an opportunity for individuals to engage in learning behaviors such as information gathering, deep reflection, and fundamental re-thinking of self and venture: behaviors conducive to transformational leadership. Yet many entrepreneurs fail to do so due to the interference of negative emotions involved. Why are some entrepreneurs better able to learn from the failure experience and subsequently perceived as transformational leaders? This paper extends the emotionality of failure to depict the inverted U-shaped relationships between failure and learning, and between failure and transformational leadership. We rely on the entrepreneur's emotion regulation to explain variance in learning from failure, which ultimately accounts for differed transformational leadership evaluation by followers. To the extent that individuals have high emotion regulation capabilities, failure experience relates positively to transformational leadership through learning behaviors. For individuals with low emotion regulation, however, the positive influences of failure experience on learning and transformational leadership would exhibit notable diminishing returns. Multi-source data from a representative sample of IT SMEs in the United States and Finland largely supported the proposed model. We discuss the implications of our model for research and practice on entrepreneurship, leadership, and management learning. [ABSTRACT FROM AUTHOR]