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The relationship between the dividends, retained earnings and a firm's growth rate suggests that firms can increase their stock price by increasing its plowback ratio.

The relationship between the dividends, retained earnings and a firm's growth rate suggests that firms can increase their stock price by increasing its plowback ratio. However, in reality we do not observe firms do this. Moreover, over the past decade we have seen firms disgorging their cash in the form of share repurchases. Why do you think firms are not plowing back more money into their firms?

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