Strategic Deviance and Cash Holdings

Journal of Business Finance and Accounting, Forthcoming

64 Pages Posted: 10 Sep 2020

See all articles by Xueyan Dong

Xueyan Dong

affiliation not provided to SSRN

Kam C. Chan

Western Kentucky University - Department of Accounting and Finance

Yujia Cui

Beijing Institute of Technology - School of Management & Economics

Jenny Xinjiao Guan

Monash University

Date Written: July 30, 2020

Abstract

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

Dong, Xueyan and Chan, Johnny and Cui, Yujia and Guan, Jenny Xinjiao, Strategic Deviance and Cash Holdings (July 30, 2020). Journal of Business Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3663556 or http://dx.doi.org/10.2139/ssrn.3663556

Xueyan Dong

affiliation not provided to SSRN

Johnny Chan (Contact Author)

Western Kentucky University - Department of Accounting and Finance ( email )

Bowling Green, KY 42101
United States

Yujia Cui

Beijing Institute of Technology - School of Management & Economics ( email )

Beijing, 100081
China

Jenny Xinjiao Guan

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

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