Modigliani and Miller (MM) argued that dividend policy is irrelevant.On the other hand, others, such as Gordon and Lintner (GL), argued that dividend policy does matter.GL's argument rests on the contention that

Question

Quizplus · Accepted Answer

Gordon and Lintner argued that investors value a dollar of dividends more highly than a dollar of expected capital gains because of perceived differences in risk. They argued that investors prefer current income from dividends to uncertain future capital gains, which may or may not materialize. This is known as the "bird-in-the-hand" theory of dividend policy.

Modigliani and Miller (MM) Argued That Dividend Policy Is Irrelevant