Concept of Dividend Irrelevance Theory

Abstract

This Article states that dividend policy does not affect the value of the firm. Their argument is that stack holder’s wealth is unaffected whether corporate profits are distributed or retained in the business. Their reasoning is that under an efficient market condition, a firm’s value is determined by its potential earning power and it does not affect the decision on how profits are to be split between dividends and retained earning. Therefore, as per M-M theory a firm’s value is independent of dividend policy.Academic Voices, Vol. 3, No. 1, 2013, Pages 46-49 DOI: http://dx.doi.org/10.3126/av.v3i1.9988