Business strategy, cash holdings, and dividend payouts

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Author(s)
Houqe, Muhammad Nurul
Monem, Reza M
van Zijl, Tony
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2023
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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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Accounting & Finance

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© 2023 The Authors. Accounting & Finance published by John Wiley & Sons Australia, Ltd on behalf of Accounting and Finance Association of Australia and New Zealand. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.

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This publication has been entered in Griffith Research Online as an advanced online version.

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Accounting, auditing and accountability

Banking, finance and investment

Applied economics

Social Sciences

Business, Finance

Business & Economics

business strategy

cash holdings

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Houqe, MN; Monem, RM; van Zijl, T, Business strategy, cash holdings, and dividend payouts, Accounting & Finance, 2023

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