We examine the impact of strategic deviance on corporate cash holdings and find that firms with strategies that deviate from their industry peers hold more cash. This pattern can be consistent with an agency motive, a precautionary motive, or both. We show that the value of cash holdings decreases with strategic deviance and that the cash effect of strategic deviance increases with agency costs but not with financial constraints, consistent with an agency motive. Finally, we find that strategically deviant firms pay lower dividends and avoid more taxes, both of which can potentially contribute to cash holdings. We conclude that strategically deviant firms hold more cash due to an agency motive.
Using data of Chinese A-share non-financial listed companies spanning years 2003-2018, we examine whether a firm's business strategy that deviates from industry conventions influences corporate governance mechanisms, particularly the probability of choosing high-quality external auditors. We document a significantly positive correlation between a firm's strategic deviance and high-quality auditor engagement. The exacerbation of agency conflict is an important driver for firms with strategic deviance to hire highquality auditors. Moreover, we find evidence that hiring Big 4 auditors can curb earnings management and capital occupation of major shareholders in firms with a deviant strategy. We conclude that strategically deviant firms hire high-quality auditors due to agency conflicts.
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