Business Strategy, Cash Holdings, and Dividend Policy: A Logistic and GMM Model Approach

Abstract

The relationship between business strategy and both cash holdings and dividend policy is not entirely clear. Given the importance of dividend policy in corporate ownership, researchers have devoted considerable attention to understanding the determinants behind this choice. Effective management of financial resources within an industry is essential for maintaining economic stability, guiding strategic decision-making, and enhancing competitiveness.

This study aims to investigate the impact of business strategy on cash holdings and dividend policy in 114 companies listed on the Tehran Stock Exchange during the period 2014 to 2023. In this research, business strategy indicators include sales growth rate, advertising expenses to total sales, number of employees to sales, market-to-book value ratio, and the ratio of fixed assets to total assets.

The results indicate that both defensive and aggressive strategies have a significant impact on cash holdings. Additionally, companies’ dividend policies are influenced by their strategic approaches; firms with growth-oriented strategies and higher advertising expenses tend to hold more cash, while companies adopting more conservative approaches tend to follow more cautious dividend policies. The findings of this research can assist corporate managers in developing financial strategies and making optimal decisions.