A theory stating that if
financial markets are perfectly
efficient, then how a company is a
financed has no bearing on its performance. That is, without taxes, asymmetric information, or government and other unnecessary
fees, then a company is equally likely to perform well regardless if it is financed by
equity issues,
debt, or something else. It also states that a company's
dividend policy is irrelevant in these circumstances. This theory has been used to justify the increased use of
leverage since the 1980s and critics contend that it has led to needless risk-taking.