Investors in growth oriented firms accept the nonpayment of dividends in order to retain earnings partially because they realize that issuing new equity would involve flotation costs that would ultimately lower earnings.

Growth Oriented Firms

Companies that prioritize reinvestment of earnings into the business to drive sales and profit growth, often at the expense of short-term dividends.

Nonpayment of Dividends

The failure of a corporation to distribute earned profits to its shareholders at expected times.

Flotation Costs

The costs incurred by a company when issuing new securities, including underwriting, legal, and registration fees.