How small and medium-sized enterprises (SMEs) cope with economic crises and their aftermaths has been engaging both practitioners and academicians for some time. This study sets to explore how the negative emotional reactions of top managers drive an SME’s strategic responses to the economic crisis initiated by the recent COVID-19 pandemic. By drawing on the affect-as-information theory, our survey data collected from 155 top managers in SMEs shows that in SMEs led by top managers who experience strong negative emotions, there is a stronger tendency for increased retrenchment and decreased investment response. Through the lens of regulatory focus theory, we additionally show that this relationship is conditioned by the regulatory foci of such managers. In SMEs led by top managers with high prevention and low promotion focus, there is a balanced response, whereas in SMEs led by top managers with strong promotion and weak prevention focus, oscillations in responses are more likely to occur.
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