Strategic Deviance and Cash Holdings
Journal of Business Finance and Accounting, Forthcoming
64 Pages Posted: 10 Sep 2020
Date Written: July 30, 2020
We examine the impact of strategic deviance on corporate cash holdings and find that firms with strategies that deviate from their industry peers hold more cash. This pattern can be consistent with an agency motive, a precautionary motive, or both. We show that the value of cash holdings decreases with strategic deviance and that the cash effect of strategic deviance increases with agency costs but not with financial constraints, consistent with an agency motive. Finally, we find that strategically deviant firms pay lower dividends and avoid more taxes, both of which can potentially contribute to cash holdings. We conclude that strategically deviant firms hold more cash due to an agency motive.
Keywords: Deviant Strategy; Cash Holdings; Agency Motive; Precautionary Motive
JEL Classification: G0
Suggested Citation: Suggested Citation