Dividend Theory ...2

Dividend Theory


dividend decision is of no significance. under a perfect market situation. .Modigliani and Miller  According to M-M. They argue that the value of the firm depends on firm earnings which results from its investment policy. the dividend policy of a firm is irrelevant as it does not affect the value of the firm. Thus when investment decision of the firm is given.

.Assumptions  Perfect capital market: – The firm operates in perfect capital markets where investors behave rationally.  No taxes: – Taxes do not exist. No risk: – Risk of uncertainty does not exists. No difference in tax rate on capital gain and dividend. information is freely available to all and transactions and flotation costs does not exist.   Investment policy: – The firm has a fixed investment policy.

In an uncertain world in which verbal statements can be ignored or misinterpreted. …. — Solomon . dividend action does provide a clear cut means of ‘making a statement’ that speaks louder than a thousand words.

Thank you. .

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