Group polarization on corporate boards: Theory and evidence on board decisions about acquisition premiums

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Abstract

This study investigates how a fundamental group decision-making bias referred to as group polarization can influence boards' acquisition premium decisions. The theory suggests that when prior premium experience would lead directors on average to support a relatively high premium prior to board discussions, they will support a focal premium that is even higher after discussions; but when directors' prior premium experience would lead them on average to support a relatively low premium prior to board discussions, they will support a focal premium that is even lower after discussions. Results provided strong support for the theory. Moreover, group polarization was reduced by demographic homogeneity among directors and by minority expertise but increased by board influence. This study introduces a fundamental group decision-making bias into governance research and explains how group processes can influence network diffusions.

Original languageEnglish (US)
Pages (from-to)800-822
Number of pages23
JournalStrategic Management Journal
Volume34
Issue number7
DOIs
StatePublished - Jul 1 2013

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Keywords

  • board of directors
  • corporate governance
  • group dynamics
  • group polarization
  • interlock network diffusion

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management

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