The residual theory of dividends, as espoused by Modigliani and Miller, suggests that dividends represent an earnings residual rather than an active decision variable that affects firm value; this means that a firm's decision to pay dividends or not will not have any impact on a firm's share price.

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The residual theory of dividends suggests that dividends do not have any impact on a firm's share price, which means that a firm's decision to pay dividends or not will not affect firm value.

The Residual Theory of Dividends, as Espoused by Modigliani and Miller