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Business strategy, cash holdings, and dividend payouts

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  • Muhammad Nurul Houqe
  • Reza M. Monem
  • Tony van Zijl

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.

Suggested Citation

  • Muhammad Nurul Houqe & Reza M. Monem & Tony van Zijl, 2023. "Business strategy, cash holdings, and dividend payouts," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 3999-4035, December.
    • Handle: RePEc:bla:acctfi:v:63:y:2023:i:4:p:3999-4035
    DOI: 10.1111/acfi.13082
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