Group Polarization on Corporate Boards: Theory and Evidence on Board Decisions About Acquisition Premiums
Strategic Management Journal, Vol. 34, No.7, pp. 800-822, 2013
42 Pages Posted: 17 Apr 2014 Last revised: 15 Aug 2015
Date Written: 2013
This study investigates how 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 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.
Keywords: corporate governance; board of directors; interlock network diffusion; group dynamics; group polarization
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By David Zhu