What dividend model states that a firm’s market value is determined solely by its earning power and investment policy, not its dividend policy?

Explanation

• Modigliani and Miller (MM Dividend Irrelevance Theorem) argue that in perfect markets, dividend policy does not impact firm stock price or cost of capital.
• According to MM, investors are indifferent between receiving cash dividends and capital gains.
• Walter’s Model and Gordon’s Model argue that dividend policy does affect stock valuation in real-world conditions.