Business strategy, cash holdings, and dividend payouts
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Date
2023-12
Open Access Location
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Publisher
John Wiley and Sons Australia, Ltd on behalf of Accounting and Finance Association of Australia and New Zealand.
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Abstract
Business strategy's impact on firm cash holdings and dividend payouts has largely remained unexplored. We identify a fundamental and direct link between a firm's business strategy and its cash holdings and dividend payouts. Analysing two large samples of data on US firms over the period 1992–2017, we find strong evidence that prospectors (defenders) are likely to hold more (less) cash and pay less (more) dividends than other firms. Further analysis suggests that prospectors pay dividends less frequently than do defenders. The results are robust to a battery of robustness checks and additional analysis. Overall, the results suggest that identifying a firm's business strategy significantly helps to understand a firm's cash holdings and dividend payout decisions.
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Keywords
business strategy, cash holdings, defenders, dividend payout, prospectors
Citation
Houqe MN, Monem RM, van Zijl T. (2023). Business strategy, cash holdings, and dividend payouts. Accounting and Finance. 63. 4. (pp. 3999-4035).