Dividend Irrelevance Theory

Very Easy Dividends And Repurchases Dividend Policy Theories

In the context of dividend policy theories, there are various perspectives on how dividends impact a company's value. One significant theory is the Dividend Irrelevance Theory, proposed by Modigliani and Miller. This theory suggests that in perfect capital markets, the dividend policy of a company does not affect its overall value. Which of the following statements best reflects this theory?

A company's dividend policy directly influences its stock price, as investors prefer cash dividends to reinvestment.

In a world of perfect information and no taxes, a firm's value is determined solely by its investment decisions, not by its dividend distributions.

Dividends are essential for attracting new investors and maintaining stock price stability.

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