Modigliani and Miller (MM) on the one hand and Gordon and Lintner (GL) on the other hand have expressed strong views regarding the effect of dividend policy on a firm’s cost of capital and value.
a. In essence, what are MM’s and GL’s views regarding the effect of dividend policy on the cost of capital and stock prices?
b. How could MM use the information content, or signaling, hypothesis to counter their opponents arguments? If you were debating MM, how would you counter them?
c. How could MM use the clientele effect concept to counter their opponent’s arguments? If you were debating MM, how would you counter them?