Two other interesting points brought up by Miller and Modigliani, as highlighted in Berk and DeMarzo (2020) were that “In perfect capital markets, investors are indifferent between the firm distributing funds via dividends or share repurchase” (p. 612) and that “In perfect capital markets, holding fixed the investment policy of a firm, the firm’s choice of dividend policy is irrelevant and does not affect the initial share price” (p. 614). Respond to this question by focusing on either dividend payout policy or the decision between stock repurchases and dividend payouts and illustrate how the assumptions made to support these axioms tend to oversimplify what occurs.

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According to Modigliani Millers theory investors do not pay any importance to the dividend history o... View the full answer