The Interaction of Business Strategy, Cash Holding, and Firm Value: Insights from Corporate Finance

Abstract

The present study investigates the association between corporate cash reserves and business strategy in non-financial enterprises in Pakistan from 2011 to 2021. The analysis evaluates how resource allocation and investment behaviour differences affect cash handling by concentrating on two competing strategies—Defenders and Prospectors. Multiple regression analysis reveals that Defender firms, which focus on stability and risk management, own far more cash reserves than Prospector firms, which emphasise expansion and innovation. The results indicate that enterprises employing a Defender strategy prioritise liquidity to mitigate risks and maintain financial stability.
Furthermore, the study provides significant insights for financial managers and investment strategists, emphasising the necessity of matching liquidity policies with business strategy to enhance firm value. Policymakers ought to promote the adoption of cash management methods by enterprises that are congruent with their strategic objectives. The research is confined to Pakistani enterprises; expanding this analysis to include international firms would enhance the findings and offer a more comprehensive knowledge of the relationship between strategy and cash holdings. The findings also demonstrate how business strategy affects cash holdings and firm value, complementing previous research on Pakistani firms.