The representative theory of dividends, as espoused by Modigliani and Miller, suggests that dividends represent a significant, active decision variable that affects firm value; this means that a firm's decision to pay dividends can have a significant impact on a firm's share price.

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Modigliani and Miller's dividend irrelevance theory posits that in a perfect market, a firm's dividend policy does not affect its value or share price, as investors can create their own dividend policy through buying or selling shares.

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