The fact that flotation costs can be significant is justification for

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Flotation costs refer to the expenses incurred by a company when issuing new shares of stocks, such as underwriting fees, legal fees, and printing fees. These expenses can be significant and can erode the value of the new shares. Therefore, it is best for a company to maintain a low dividend policy and rarely issue extra dividends, as this can minimize the need to issue new shares and reduce the corresponding flotation costs. Maintaining a high dividend policy or issuing larger dividends than competitors may require frequent stock issuances, leading to higher flotation costs. Maintaining a constant dividend policy even when profits decline significantly may not be feasible or advisable, as the company's financial situation may call for a reduction or suspension of dividends.

The Fact That Flotation Costs Can Be Significant Is Justification