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Dividend Theories
SUBJECT : Financial Management
PUBLISHED ON : 16/09/13
NUMBER OF PAGES : ( 11 Pages)
PRICE : Rs 8.25

On the relationship between dividend policy and the value of the fi rm, different view points have been expressed by financial experts. Different theories have been advanced by them. The first view point is that dividends are irrelevant arid the amount of dividends paid does not affect the value of the firm. The major argument indicating that dividends are irrelevant was first propounded by Franeo Modigiliani and Merton Miller in 1961. According to MM approach the dividend policy of a firm is irrelevant as it does not affect the wealth of the shareholders. They argue that the value of the firm depends on the firms earnings which result from its investment policy. Thus, when investment decision of the firm is given, the dividend decision is of no significance in determining the value of the firm. Their hypothesis is based on certain assumptions which have been criticized by the proponents of the dividends relevance school.

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