What can limit a company's growth according to equity financing?

High demand for dividends can limit a company's growth because when a company raises funds through equity financing, it often attracts investors who expect returns on their investments in the form of dividends. If a company has to allocate a significant portion of its profits to pay dividends to shareholders, it can reduce the amount of retained earnings available for reinvestment in the business. This can hinder the company's ability to fund expansion plans, research and development, or other growth initiatives.

In equity financing, the expectations of shareholders for consistent or increasing dividends can lead management to prioritize short-term payouts over long-term growth strategies. Consequently, if a company's cash flow is primarily directed towards meeting dividend expectations, it may struggle to finance projects that could drive growth, thereby limiting its expansion potential.