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Understanding how entrepreneurs' positive affect influences firm innovation through the cognitive processes (e.g., entrepreneurial alertness to business opportunities) is important because emotions often impact evaluations and judgments of opportunities and (subsequent) firm engagement in innovative activities. Using data involving Iranian entrepreneurs, we find that (1) Tang, Kacmar, and Busenitz's (2012) three alertness components unfold sequentially (i.e., information scanning and search leads to information association and connection which in turn leads to opportunity evaluation and judgment); (2) positive affect has a positive impact on all three alertness dimensions; and (3) evaluation and judgment impacts firm incremental innovation positively. Implications and future research directions are discussed.

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