Answer:
Paying out fewer dividends leads to an increase in a firm's retained earnings as the saved profits are kept within the company to be used for growth or debt repayment.
Step-by-step explanation:
When a firm pays out fewer dividends, it increases the accounting value of its retained earnings. This is because retained earnings represent the portion of the company's profits that are reinvested in the business rather than being distributed to shareholders as dividends. If a company decides to reduce its dividend payout, the amount of retained earnings will grow, as there will be more profits left within the company to support future growth or to pay off debts.