It is true that underlying the dividend irrelevance theory proposed by Miller and Modigliani is their argument that the value of the firm is determined only by its basic earning power and its business risk.
The fundamental earning capability of the company and its business risk are the sole factors that define its value, according to Miller and Modigliani's dividend irrelevance argument.
Dividends are perceived by investors as less risky than possible future financial gains. It claims that a company's dividend payout has no bearing on its company valuation.
Even if dividends are paid or kept by the company for an endless period of time, the value of the company will not change. According to Miller and Modigliani, the dividend policy has no bearing in a perfect stock market.
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