Scholars have long been interested in the decision-making process regarding when firms pay premiums vs discounts for acquired firms. Paying high acquisition premiums inflate a firm’s goodwill, and have often been criticized in research. Acquisition premiums the last few years have averaged 25 to 40 percent, but sometimes exceed 100 percent. Prior research suggests that high premiums generally have negative impacts on acquisition performance. Scholars have explored the how and why of excessive premium decisions to determine if overconfidence or hubris on the part of chief executive officers (CEOs) is the culprit. Specifically, Zhu (2013) recently reported that board members influence on premium vs discount decisions may not always be beneficial. In particular, Zhu reports a tendency for directors to support low premiums when their average prior premium was low, but directors tend to support paying high premiums when their average prior premium was relatively high. Due to this “group bias,” Zhu questions the extent that (or whether) members of a firm’s board of directors should be involved with acquisition purchase decisions.

(Zhu, David (2013), “Group Polarization on Corporate Boards: Theory and Evidence on Board Decisions About Acquisition Premiums,” Strategic Management Journal, 34, 800-822).