Group Polarization in Board Decisions about Strategic Change: Evidence from Chinese Publicly Listed Companies (2008-2018)

Abstract

Strategic management scholars have shown increasing interest in explaining strategic change from the perspective of cognitive bias. However, most studies focus on individual cognitive bias but pay little attention to group cognitive bias. This study introduces a typical group cognitive bias (group polarization) to explain strategic change decisions made by the board of directors. Following the theory of group polarization, we argue that, when the average prior strategic change experienced in performance decline by board directors is relatively high (or low), the focal strategic change in performance decline will become even higher (or lower). We further contend that the proportion of female directors and board versus CEO power as the contingencies can mitigate this group polarization effect. Our hypotheses were strongly supported by a longitudinal sample of Chinese publicly listed companies during 2008-2018. The study's framework and findings contribute to the contextualization of social psychology research on group polarization in the study of board's strategic decision-making.