The Effect of Defensive and Prospective Business Strategies on Cash Dividend Payments: The Moderating Role of Free Cash Flows and Financial Constraints

Document Type : Original Article

Authors

1 Ph.D. Student in Accounting, Faculty of Administrate and Economics, University of Isfahan, Isfahan, Iran.

2 Assistant Professor of Accounting, University of Isfahan, Isfahan, Iran.

3 Assistant Prof. of Accounting, Faculty of Administrative Sciences and Economics, University of Isfahan, Iran.

10.22108/far.2025.146600.2161

Abstract

Dividend policy is one of the most important financial decisions of firms, influenced by various factors such as financial conditions, growth opportunities, and strategic characteristics. Among these, a company’s business strategy can fundamentally affect dividend policies and shape managerial behavior in cash allocation. This study investigates the impact of defensive and prospective business strategies on cash dividend payments, considering the moderating role of free cash flows and financial constraints. For this purpose, data from 145 companies listed on the Tehran Stock Exchange over the years 2013–2023 were analyzed. To test the hypotheses, linear and panel regression models were employed, controlling for year and industry effects. The results indicate that a prospective strategy has a significant negative effect, while a defensive strategy has a significant positive effect on the dividend payout ratio. Moreover, free cash flows weaken the effect of a prospective strategy on dividend payments but do not affect the relationship between a defensive strategy and dividend payments. Financial constraints reduce the impact of a prospective strategy on dividend payments but do not play a moderating role in the effect of a defensive strategy. Overall, the findings suggest that dividend policy is shaped not only by firms’ financial characteristics but also by their business strategy and the normative pressures of the capital market.

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History

  • Receive Date: 08 September 2025
  • Revise Date: 22 October 2025
  • Accept Date: 09 December 2025

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