This study investigates the interplay between performance feedback and institutional investor dynamics through the lens of the behavioral theory of the firm. Drawing on a comprehensive dataset of U.S. publicly traded firms, it examines how performance outcomes relative to benchmarks may influence the composition of institutional investors and, in turn, shape firms’ strategic decisions. The findings point to a dynamic process in which changes in investor composition, triggered by performance feedback, can exert an influence on corporate decision-making and behavior. This study aims to extend theoretical understanding by exploring how external stakeholders can respond to varying levels of organizational performance relative to aspiration levels, ultimately shaping certain strategic outcomes. Lastly, it highlights practical considerations for managers, offering insights into the complex interplay between performance targets and investor preferences. By deepening their understanding of these dynamics, managers could more effectively align organizational actions with diverse investor expectations.
