Consider the following argument: "By selling predetermined amounts of stock in an environment of no taxes or transaction costs, investors can create their own dividend policy. For example, a shareholder that wants a 5% dividend can "create" it by selling 5% of her stock. Conversely, if a company pays a higher dividend than an investor desires, the investor can use the unwanted portion of this dividend to purchase additional stock." This argument applies to which of the following theories? Choose the best answer.
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A. B. C. D. E.E
Modigliani and Miller established the Dividend Irrelevance Theory, which stated that in an environment of no taxes or transaction costs, dividend policy is irrelevant. Modigilani and Miller grounded this assumption in the fact that in such an environment, investors could create their own dividend policy by selling and buying shares of stock.