The dividend irrelevance theory implies that the firm should follow a residual dividend policy.

Question

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The dividend irrelevance theory, proposed by Modigliani and Miller, suggests that a firm's dividend policy is irrelevant to its market value and that dividends do not affect the wealth of shareholders. It does not specifically advocate for a residual dividend policy, which is a strategy where dividends are based on the earnings left over after all project capital needs are met.

The Dividend Irrelevance Theory Implies That the Firm Should Follow