A firm that retains earnings does the equivalent of

Question

Quizplus · Accepted Answer

When a firm retains earnings, it is essentially using the profits that could have been distributed to shareholders (as dividends) for its own purposes, such as reinvestment in the business. This can be viewed as borrowing money from the shareholders because the firm is holding onto profits that legally belong to the shareholders, using those funds to potentially generate more value for the firm instead of distributing them.

A Firm That Retains Earnings Does the Equivalent of