The Effect of Business Strategy on Cash Holdings: A Life-Cycle Perspective

The study aims to explore the effect of business strategy and life cycle on non-financial Indonesian firms' cash holdings (CH) from 2017 to 2022. Miles and Snow's theoretical background was used to distinguish the contrasting business strategies (prospectors and defenders), then followed by Bentley’s strategic composite index. Dickinson's life cycle is used to differentiate each life cycle phase. The authors have used multiple regression analysis to explore the association between business strategy and CH. The results show that business strategy is positively related to CH. Prospectors are more likely to hold higher cash levels than defenders. All life cycle phases affect CH, with the growth phase being the strongest. The results have valuable implications for researchers by introducing the relationship between corporate strategy and a firm's CH in emerging and developed countries. The empirical evidence based on industry sector and international samples would add value to the current literature. The findings could be helpful to financial managers and investment strategists who seek to maximize firm value by adopting an effective liquidity policy. This study supports the idea that strategic choice and cash management are important for firms.