Managerial Prosocial Preferences and Guilt as an Emotional Barrier to Exit Decisions

Despite economic setbacks, managers may resist exiting to avoid harming employees who will lose their jobs. We propose that managers with higher prosocial preferences set lower exit thresholds and select conservative investments that reduce the risk of having to exit because they experience stronger feelings of anticipatory guilt. Our field study shows that, in responding to intensifying Chinese import competition, prosocial managers are less likely to exit or divest. Our experiments (N = 1,411), including a sample of senior executives, show that anticipatory guilt mediates the negative effect of prosocial preferences on exit thresholds and risky investments. Anticipatory guilt and its effect are stronger when employees suffer greater harm from the firm’s exit due to the absence of social insurance programs, such as public health insurance or unemployment insurance. Our study presents an emotion-processual account of firm exit decisions and highlights anticipatory guilt as an emotional barrier to efficient decision-making. This paper was accepted by Isabel Fernandez-Mateo, organizations. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.02533 .