Does Business Strategy Affect Dividend Payout Policies?

Purpose: The purpose of this study is to investigate whether corporate dividend payout policies of non-financial and non-utilities US public firms are affected by business strategy over the period from 1992 to 2017.Empirical methodology: We use a comprehensive measure of business strategy based on Miles and Snow's (1978, 2003) theoretical framework, following Bentley et al. (2013). Based on Miles and Snow's (1978, 2003) theoretical framework, we account for two endpoints (prospectors and defenders) of the business strategy continuum. To test our empirical predictions, we use fixed-effect regression models.Findings: Firms following an innovation-oriented business strategy (prospectors) tend to pay less dividend than firms following a cost-effective business strategy (defender). We provide evidence of a link between business strategy and corporate dividend payout policies. Especially, compared with defenders, prospectors are likely to delay in dividend initiation process and hold a current level of dividend payment. We argue that this cross-sectional difference in dividend payment is attributed to a higher degree of operating cash flow volatility. We also show that this difference is subject to financial constraint, stock market liquidity, and tax uncertainty.Contribution: We show a link that helps investors' ability to predict the expected dividend. We contribute to work on business strategy and its impact on corporate finance: corporate financial reporting, tax planning practices, and corporate social responsibility among others