This study examines the relation between a firm's business strategy and its dividend payout policies. Using a comprehensive measure of business strategy based on Miles and Snow's (1978, 2003) theoretical framework, we find that a firm's business strategy affects its dividend payout policies. Specifically, we document that firms following an innovation-oriented business strategy (PROSPECTORS) are less likely to pay, initiate, and increase dividends than those following a cost-effective business strategy (DEFENDERS). We also identify operating cash flow volatility and financial covenant constraints as two potential mechanisms through which innovation-oriented business strategy influences dividend payout policies. The business strategy effect is more pronounced in growth firms, the post-financial crisis period, and firms with lower CEO pay-for-performance sensitivity. Our results are robust to various tests, including the IV-Probit model, dynamic panel model, and entropy balanced approach.
Akindayomi, Akinloye, and Md Ruhul Amin. "Does business strategy affect dividend payout policies?." Journal of Business Research 151 (2022): 531-550. https://doi.org/10.1016/j.jbusres.2022.07.028
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Journal of Business Research
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Original published version available at https://doi.org/10.1016/j.jbusres.2022.07.028