How stressful is firm insolvency? Self-reported, biological, and physiological indicators of entrepreneurs’ well-being

This study advances research on the nexus of business insolvency and entrepreneurs’ well-being. We broadly build upon the Conservation of Resources Theory (COR) and explore the severity of the impact of firm insolvency on subjective well-being, stress hormones, and physiological recovery. To test our hypotheses, we compared entrepreneurs operating in 51 businesses affected by insolvency with 51 entrepreneurs in a control group. We conducted our study in Germany, where legal regulations surrounding insolvency are relatively unfavorable for those affected. Our findings indicate that entrepreneurs facing insolvency experience lower psychological well-being, greater vital exhaustion, higher stress hormone levels, and, as revealed by supplementary analyses, poorer risk adjustment. Our study complemented entrepreneurs’ self-reports with objective methods to examine entrepreneurial well-being in times of hardship from three perspectives: psychological, biological, and physiological. Although exploratory, our study provides relevant insights into potential repercussions of business failure.

JEL CLASSIFICATION: I10; L26; G01