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The Disadvantage of Incomplete Performance Feedback: Evidence from Private Equity–Backed Buyouts

46 Pages Posted: 8 Oct 2015  

Francesco Castellaneta

Catolica Lisbon School of Business and Economics

Oliver Gottschalg

HEC Paris - Strategy & Business Policy

Aleksandra Kacperczyk

Massachusetts Institute of Technology (MIT)

Mike Wright

Imperial College London

Date Written: September 3, 2015

Abstract

We develop and test a theory of how organizations learn from performance feedback in the context of strategic decisions, where delayed outcomes result in performance feedback that is incomplete. In this context, firms facing a focal decision observe performance feedback for only a subset of their previous decisions. Using a sample of 7,223 private equity buyout investments, we find that incomplete performance feedback has a negative impact on the performance of a subsequent decision. Our results also suggest that incomplete performance feedback creates challenges when firms engage in problemistic search, reducing the well-established benefits of search for firm future performance. Moreover, this mitigating effect of incomplete feedback is stronger when performance falls below rather than exceeds aspirations.

Keywords: performance feedback, behavioral theory, aspirations, buyouts, private equity

Suggested Citation

Castellaneta, Francesco and Gottschalg, Oliver and Kacperczyk, Aleksandra and Wright, Mike, The Disadvantage of Incomplete Performance Feedback: Evidence from Private Equity–Backed Buyouts (September 3, 2015). Available at SSRN: https://ssrn.com/abstract=2670698 or http://dx.doi.org/10.2139/ssrn.2670698

Francesco Castellaneta (Contact Author)

Catolica Lisbon School of Business and Economics ( email )

Portugal

Oliver Gottschalg

HEC Paris - Strategy & Business Policy ( email )

Jouy-en-Josas Cedex, 78351
France

Aleksandra Kacperczyk

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Mike Wright

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

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