Firms prefer not paying _____if it avoids selling new stock, because _____cost less than new equity.

Question

Quizplus · Accepted Answer

Firms prefer not paying dividends if it avoids selling new stock because retained earnings cost less than new equity. Retained earnings are the portion of net income that is not distributed to shareholders as dividends but is kept by the company for reinvestment. Using retained earnings to finance new projects or expansion is generally cheaper than raising capital through issuing new stock, which can dilute existing ownership and incur underwriting fees.

Firms Prefer Not Paying _____If It Avoids Selling New Stock