Business strategy typologies: do the board of commissioners and audit committee concern about prospector-type strategies?

Abstract

PurposeThe study aims to provide new evidence on the relationship between the board of commissioners (BOCs) and audit committee (AC) as a primary corporate governance structure toward business strategy typologies.Design/methodology/approachThe authors use logistic regression analyses with a sample of industrial companies listed on the Indonesia Stock Exchange from 2012–2018. Data of the BOC and AC are hand-collected from the annual reports and analyzed using the content analysis.FindingsThe study finds evidence that the effectiveness of the BOC is more likely to have a positive association with the prospector strategies. The authors also find that the AC's effectiveness is more likely to associate negatively with prospector strategies. As the board monitoring system, the findings appear to disclose that the BOC and ACs following the prospector strategies are more likely to focus on achieving the entity's strategy than monitoring financial reporting and internal control functions compared with the defender strategies.Practical implicationsThe results have significant practical implications to help explain that despite the corporate governance mechanisms that are likely to exist, prospectors are still likely to have weaker internal control and less likely to remediate material weaknesses (MWs) than defenders due to their specific business strategy related attributes.Originality/valueThe study extends the studies on the corporate governance mechanism using the BOC and the AC's roles in business strategy setting from the strategic management literature using Miles and Snow's (1978; 2003) framework.