MM Hypothesis of Dividend Irrelevance

This article discusses the Modigliani-Miller (MM) hypothesis of dividend irrelevance. The MM hypothesis states that the value of a firm is not affected by its dividend policy. This is because the value of a firm is determined by its future earnings and its capital structure, not by its dividend policy.

Here are some of the key points of the MM hypothesis:

• The value of a firm is determined by its future earnings and its capital structure, not by its dividend policy.
• Investors are rational and can easily substitute between dividends and capital gains.
• There are no taxes on dividends or capital gains.
• There are no transaction costs associated with buying or selling shares.

The MM hypothesis has been challenged by some empirical studies, but it remains an important theoretical framework for understanding dividend policy.