This dissertation examines how a fundamental group decision-making bias referred to as group polarization may influence boards’ major strategic decisions (i.e. acquisition premiums, executive compensation, and diversification) and the diffusion of practices through interlock networks. I begin by explaining how directors’ average pre-meeting position tends to reflect the average decision they previously experienced across various boards. The elaborated polarization theory then suggests that board discussions can systematically induce directors to make a collective decision that amplifies their average pre-meeting position. For instance, I suggest that when prior acquisition premiums experienced by directors would lead them to on average support a relatively high (low) premium prior to a board meeting, they tend to approve a focal premium that is even higher (lower). I also examine several key moderators of the group polarization effect. I test the theory with a comprehensive dataset that includes historical records of major strategic decisions experienced by Fortune 500 directors across the population of U.S. public companies (1991-2006). Results provided strong evidence of group polarization in boards’ major strategic decisions. In addition, as predicted, group polarization was significantly reduced by the degree of demographic homogeneity among directors, the relative amount of experience (minority vs. majority in terms of opinions) with the type of decision under consideration, and the relative power (minority vs. majority). There is also evidence that board influence over management and the diversity of directors’ pre-meeting positions increase the polarization effect. The relative similarity of prior decisions (minority vs. majority) didn’t significantly reduce group polarization though. This dissertation extends corporate governance research from studying economic and sociological factors to examining social psychological processes of groups that can influence board decisions. It explains how group discussions may induce directors to approve a focal decision that is more extreme than the average decision experienced by directors on other boards, thus suggesting how group processes may distort network diffusion effects. Contributions to research on strategic decision-making processes, experience effects, and group polarization are also discussed
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