Same owner, different impact: How responses to performance feedback differ across a private equity investor’s portfolio firms
Collewaert, V; Neckebrouck, J; Vanacker, T; et al.Bourgois, D; Manigart, S
Date: 13 November 2023
Article
Journal
Strategic Entrepreneurship Journal
Publisher
Wiley / Strategic Management Society
Publisher DOI
Abstract
Research summary: Private Equity (PE) investors invest in a portfolio of firms, setting new,
ambitious performance aspirations and providing monitoring and value-adding services to help
management attain these aspirations. Integrating a behavioral theory of the firm and corporate
governance perspective, this study investigates ...
Research summary: Private Equity (PE) investors invest in a portfolio of firms, setting new,
ambitious performance aspirations and providing monitoring and value-adding services to help
management attain these aspirations. Integrating a behavioral theory of the firm and corporate
governance perspective, this study investigates how portfolio firms respond to performance
feedback, considering heterogeneity in PE investors’ incentives and influence towards a given
portfolio firm’s strategic actions. Using unique data from a PE investor including direct
aspirations measures, we find that (1) portfolio firms’ performance relative to aspirations, and (2)
the PE investor’s relative investment amounts and experience of PE-appointed board members,
interact to affect the distinct growth strategies (i.e., internal capital investments or external
acquisitions) its portfolio firms pursue.
Managerial summary: A PE investor may guide its portfolio firms differently. Incentives to
intervene should be larger in case of larger investments, and influence should be more extensive
in case of more senior PE board representatives. In this study, we examine how a PE investor’s
varying incentives and influence affect how PE-backed firms strategically react to under- and
overperformance. We find that a PE investor pushes for capital investments but deters
acquisitions as performance shortfalls increase in a portfolio firm, when they have made larger
investments and appointed more senior board members. In case of overperformance, a PE
investor pushes towards acquisitions (and against capital investments) when they have invested
more. Surprisingly, the opposite holds in case of more senior board members.
Management
Faculty of Environment, Science and Economy
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