Abstract
During the past 20 years several theoretical valuation models with empirically testable implications regarding the impact of financial decisions, particularly debt policy and dividend policy, have appeared in the financial literature. Some of these models have been subjected to extensive testing. However, results of these investigations are inconclusive and/or conflicting as to the impact of financial policies on share value. For instance, on the basis of a study of electric utility firms, Miller and Modigliani (M&M) find that neither dividend nor debt policies of the firm affect the value of the firm. On the other hand, Weston, as well as Brigham and Gordon, disagree with M&M's findings based upon their own investigations of electric utility firms.
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