Collewaert, VeroniekNeckebrouck, JeroenVanacker, TomBourgois, DriesManigart, Sophie2023-11-072023-11-0720241932-439110.1002/sej.1487http://hdl.handle.net/20.500.12127/7283Research 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 toward 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 underperformance 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 toward acquisitions (and against capital investments) when they have invested more. Surprisingly, the opposite holds in case of more senior board members.enPrivate Equity InvestorBehavioral Theory of the FirmCorporate GovernanceGrowthPerformance FeedbackPrivate EquityStrategic Entrepreneurship Journal1932-443X7615335884