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The Modigliani-Miller (MM) hypothesis on dividend policy is a significant theory in financial management that explains the relationship between a firm’s dividend decisions and its market value. Proposed by Franco Modigliani and Merton Miller, the theory states that under certain ideal market conditions, dividend policy is irrelevant to the value of a firm. According to MM, the value of a firm depends primarily on its earning capacity and investment decisions rather than on how earnings are divided between dividends and retained earnings. The MM hypothesis is based on the principle of dividend irrelevance. When a firm earns profits, it can either distribute them to shareholders as dividends or retain them for financing future ______ ______ _____ _______ ___ ____ ______ ___ ______ ______ ___.
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