Business Strategy and Dividend Policy

We examine the influence of business strategy on dividend payouts. We find that firms following an innovation-oriented strategy (prospectors) pay significantly lower dividends than those following an efficiency-oriented strategy (defenders). Our cross-sectional analyses suggest that such relation is more pronounced for firms enjoying better growth opportunities and superior performance. Further analysis reveals that prospectors make significantly more capital investment, consistent with prospectors paying less dividend to finance investment opportunities. Furthermore, by exploiting exogenous shocks to the supplies of high-skill employees, we conduct triple-differences (DiDiD) analyses and find that prospectors increase their dividend payouts in response to the reduction of talent mobility and consequently viability of the innovation-oriented strategy. Our results are robust to a propensity-score-matched (PSM) sample, an instrumental variable (IV) approach, the inclusion of individual business strategy components and alternative measures of key variables. Overall, our findings highlight business strategy as an inherent determinant of dividend payout policies.