The fact that ﬂotation costs can be signiﬁcant is justiﬁcation for:

Question

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Flotation costs are the costs associated with issuing new securities, such as underwriting fees, legal fees, and registration fees. These costs can be significant, especially for smaller issues. Therefore, it makes financial sense for a firm to maintain a low dividend policy and rarely issue extra dividends. This approach allows the firm to retain more earnings, which can be used for investment or other purposes, reducing the need to raise external funds through new equity or debt, thereby avoiding the associated flotation costs.

The Fact That ﬂOtation Costs Can Be Signiﬁcant Is Justiﬁcation