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Project
Performance aspirations in venture capital-backed companies
The Behavioral Theory of the Firm (BTOF) is one of the most widely used theories to explain firm conduct. According to the theory, decision-makers prospectively set targets for acceptable performance based on their firm’s historical performance and the performance of industry peers, and evaluate the need to change strategies by comparing actual organizational performance with those targets. While a sizeable body of work has built on the theory to explain a wide set of strategic outcomes (including expansion; mergers and acquisitions; diversification; changes to product format; and market positioning), empirical results often remain mixed. In this project, we propose that more accurate predictions of firm strategic conduct can be obtained by adopting a governance perspective to BTOF on how decision makers set their targets for acceptable performance, and hence evaluate and respond to performance outcomes. In particular, we propose that venture capital (VC) investors are a key party who may substantially influence what managers pay attention to. First, we study under what conditions VC-backed firms focus more on peer relative to historical performance. While we know both components matter for performance evaluation, we know far less about which matters more when. Second, we examine under what conditions firms focus more on recent than distant performance when confronted with performance discrepancies. To date, scholars have assumed all companies are the same in terms of how much they weigh recent versus more distant past performance in their performance evaluations – we challenge this by proposing that key governance factors will shift the relative attention more to one over the other. Finally, we study how the strategic focus of VCs may impact what performance metric managers pay attention to and the type of strategic (re)action management initiates in case of performance discrepancies.
Date:1 Sep 2022 → Today
Keywords:Behavioral Theory of the Firm, venture capital
Disciplines:Business economics, Strategic management
Project type:PhD project
Results:Project tijdelijk stopgezet