The dividend irrelevance hypothesis argues that the negative impact on P₀ of reducing or eliminating early dividends is offset by the positive effect of larger dividends later on and an increased selling price.

Question

Quizplus · Accepted Answer

The dividend irrelevance hypothesis states that the value of a firm is not affected by its dividend policy. Therefore, reducing or eliminating early dividends should not have a negative impact on P₀, as it would be offset by other factors such as higher future dividends and an increased selling price.

The Dividend Irrelevance Hypothesis Argues That the Negative Impact on P0

The Dividend Irrelevance Hypothesis Argues That the Negative Impact on P₀