Question

Need a concluding paragraph on Miller and Modigliani proposition that dividend policy has no impact on the value of the firm and their theory on dividend policy and its practical limitations.

*for a dissertation, not an essay question

(Need a different answer to the ones which already exist with regard to this question)

Answer 1

Concluding paragraph: Dividends are irrelevant in computing the valuation of a company as investors do not attach any value to the dividend history of a company. Investors’ accord importance to earnings of a company and so earnings impacts the valuation of a company directly. Earnings are a reflection of a company’s investment policy and its future prospects and this is what matters to investors, not the company’s dividend history. Moreover investors are capable of making their own cash flows from the stocks owned by them and this depends on their cash needs. As such the dividend policy of a company will have no influence on the investment decisions of the investors. Also when the arbitrage argument is considered then Miller and Modigliani proposition that dividend policy has no impact on the value of the firm comes to hold ground. As such on the basis of arbitrage argument dividends distribution to shareholders is offset by external financing.