@article{8b8dc3619741411db0d25d2c86916243,
title = "Do non-financial factors influence corporate dividend policies? Evidence from business strategy",
abstract = "In this paper, we examine the influence of business strategy on dividend policy. 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 show that such association is more pronounced among firms with greater investment opportunities and superior performance. Further analysis reveals that prospectors make significantly more capital investment, consistent with prospectors paying fewer dividends to finance their investment activities. Moreover, we address potential endogeneity concerns by implementing (i) a triple-difference analysis (DiDiD) that exploits an exogenous shock that hinders innovation through curbing the supply of highly skilled employees and (ii) an instrumental variable approach. Our results are robust to a propensity-score-matched (PSM) analysis, the inclusion of individual business strategy components, and the use of alternative measures of the dependent variables. Overall, our findings highlight business strategy as an inherent and non-financial determinant of dividend policies.",
keywords = "Business strategy, Capital investment, Dividend payout, Talent mobility",
author = "Zhangfan Cao and Chen, {Steven Xianglong} and Mostafa Harakeh and Edward Lee",
note = "Funding Information: In this section, we employ the Inevitable Disclosure Doctrine (IDD) an exogenous shock to the mobility of talented workers who possess a proprietary set of skills and expertise, a key determinant of firms' innovation (e.g., Almeida & Kogut, 1999). The IDD has been adopted in different states in the US at different times and it allows employers to legally prevent former employees from joining competitors given that the company's proprietary information and trade secrets are at stake.7 In other words, the employer can prevent an incumbent employee from working for a competitor if they prove to the court that the job cannot be done without inevitably using or disclosing the company's sensitive information. To the extent that human capital is the main driver of corporate innovation (see the survey of Breschi & Lissoni, 2001), the IDD forms a negative shock to firms' business strategy by hindering the mobility of highly skilled and talented employees, who are highly demanded by prospectors (Callen et al., 2020; Glaeser, 2018; He, 2018; Li et al., 2018; Qiu & Wang, 2018). More importantly, studies find that, when talent competition intensifies in the market, companies tend to pile more cash (He, 2018). As such, to the extent that talent mobility is curbed upon adopting IDD, prospectors are expected to have higher financial liquidity due to the reduction in innovative investments, which is expected to increase dividend payouts. In light of the preceding discussion, we introduce Eq. (3) in which we examine the exogenous effect of IDD on the association between firms' business strategy and dividend policy, where IDD is a dummy variable equal to one if the firm is headquartered in a state with IDD legislation in a given year, and zero otherwise. The coefficients of interest are δ1 and δ2, which capture the change in the effect of prospectors' and defenders' business strategy on dividends policy following the enactment of IDD, respectively. All variables are defined previously and in Appendix 1. Publisher Copyright: {\textcopyright} 2022 Elsevier Inc.",
year = "2022",
month = jul,
doi = "10.1016/j.irfa.2022.102211",
language = "English",
volume = "82",
journal = "International Review of Financial Analysis",
issn = "1057-5219",
publisher = "Elsevier Inc.",
}