The M&M dividend proposition states that

Question

Quizplus · Accepted Answer

This proposition is not supported by empirical evidence and is considered to be false. Shareholder value is determined by a combination of factors, including a firm's financial performance, growth prospects, and risk profile, and dividend policy is just one component of this equation. The decision to pay dividends or retain earnings depends on a variety of factors, such as investment opportunities, debt levels, and cash flow needs, and there is no one-size-fits-all strategy that maximizes shareholder value. The M&M dividend proposition, put forth by Modigliani and Miller, argues that the firm's dividend policy has no impact on shareholders' value. This is because investors can create their own desired cash flow by selling a portion of their shares if they need more cash, regardless of whether the dividend is high or low. Therefore, the answer is D - shareholder value is unaffected by a firm's dividend policy.

The M&M Dividend Proposition States That