Because retained earnings are a form of internal financing, the dividend decision can significantly affect the firm's external financing requirements.

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Retained earnings are the profits that a company has earned and kept instead of distributing as dividends to shareholders. By retaining earnings, a company can use them to finance new projects or investments. If a company decides to pay out more dividends, it will have less retained earnings available for internal financing, which can result in a higher need for external financing through debt or equity issuances. Therefore, the dividend decision can have a significant impact on a company's external financing requirements.

Because Retained Earnings Are a Form of Internal Financing, the Dividend