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This paper, on subdominant eigenvalue location of a bordered diagonal matrix,is the mathematical sequel to an accounting paper by Gao, Ohlson, Ostaszewski\cite{GaoOO}. We explore the following characterization of dividend-policyirrelevance (DPI) to equity valuation in a multi-dimensional linear dynamicsframework $L$: DPI occurs under $L$ when discounting the expected dividendstream by a constant interest rate iff that rate is equal to the dominanteigenvalue of the canonical principal submatrix $A$ of $L.$ This is justifiablythe `latent' (or gross) rate of return, since the principal submatrix relatesthe state variables to each other but with dividend retention. We find that DPIreduces to the placement of the maximum eigenvalue of $L$ between the dominantand subdominant eigenvalues of $A.$ We identify a special role, and a lowerbound, for the coefficient measuring the year-on-year dividend-on-dividendsensitivity in achieving robust equity valuation (independence of smallvariations in the dividend policy).

Subdominant eigenvalue location and the robustness of Dividend Policy Irrelevance