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

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.

When Experts Become Liabilities: Domain Experts on Boards and Organizational Failure

“…Moreover, group polarization (Friedkin, 1999;Isenberg, 1986) can further increase the effect of overconfidence in decision-making groups with higher proportions of experts. In the context of corporate boards, group polarization implies that board decisions will reflect the amplification of directors' average initial positions (Zhu, 2013). Thus, if domain experts have similar assessments of a situation because of shared domain schemas and overconfidence about the accuracy of their assessments, then group polarization in an expert-heavy board can amplify, beyond the directors' average tendency, the board's inclination toward domain experts' overconfident assessments.…”

Group Polarization Effects on Decisions by Selected Kenyan Secondary School Disciplinary Panels

“…Meyers (1989) asserts that group discussions always tend to influence group members to shift their opinions from the ones they held before the group discussion. During group discussions members freely share or exchange information, opinions or ideas about what is being discussed and that such information may not be available to them before the group meeting (El-Shinnawy & Vinze, 1998;Zhu, 2009). Therefore, one factor which that tends to influence members such that by the end of the group discussions the opinions of members change, becoming closer or there is a tendency of a group consensus, is the information shared during group meeting.…”

Gender, Age and Teaching Experiences Differences in Decision-Making Behaviours of Members of Selected Kenyan Secondary School Disciplinary Panels

“…9, No. 10; 2013 (Mercier & Sperber, 2011;Zhu, 2009). Apart from social comparison behaviour tendency group members are also influenced by the nature of information shared during group meetings Thus group members may be persuaded to change their original pre-group meeting individually made decisions on a group task depending on the nature of information shared.…”

“…As asserted by Mercier and Sperber (2011) group members are influenced to change from their pre-group meeting individually-made decisions to post-group meeting collective or consensus group decision due to what is called persuasive arguments. As group members interact among themselves during a group meeting they freely exchange information which encourages or persuades them to shift their decisions towards a collective or consensus decision depending on the strength or persuasiveness of the arguments or the information shared (Zhu, 2009). Information shared during a group meeting may be described as persuasive depending on whether or not it is a new information not known until the group meeting and the information is perceived as credible or correct because it provides better understanding or comprehension and better insight into the group task (Mercier & Sperber, 2011).…”