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

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  • David H. Zhu

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. Copyright © 2012 John Wiley & Sons, Ltd.

Suggested Citation

  • David H. Zhu, 2013. "Group polarization on corporate boards: Theory and evidence on board decisions about acquisition premiums," Strategic Management Journal, Wiley Blackwell, vol. 34(7), pages 800-822, July.
    • Handle: RePEc:bla:stratm:v:34:y:2013:i:7:p:800-822
    DOI: 10.1002/smj.2039
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    Cited by:

    1. Guoli Chen & Ronghong Huang & Shunji Mei & Kelvin Jui Keng Tan, 2025. "CEO Initial Contract Duration and Corporate Acquisitions," Organization Science, INFORMS, vol. 36(1), pages 65-87, January.
    2. Stevo Pavićević & Jerayr (John) Haleblian & Thomas Keil, 2023. "When Do Boards of Directors Contribute to Shareholder Value in Firms Targeted for Acquisition? A Group Information-Processing Perspective," Organization Science, INFORMS, vol. 34(5), pages 1759-1776, September.
    3. Francisco Brahm & Joaquin Poblete, 2024. "Organizational Culture, Adaptation, and Performance," Organization Science, INFORMS, vol. 35(5), pages 1823-1848, September.

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