Modigliani-Miller theorem

The Modigliani-Miller theorem states that the value of the two firms is the same.

Therefore, the Modigliani-Miller theorem is also often called the 'capital structure irrelevance principle'.

The equation combines the Modigliani-Miller theorem with the capital asset pricing model.

The proposition rests upon a no arbitrage argument similar to that of the Modigliani-Miller theorem.

Today, it is generally accepted that dividend policy is value neutral (see Modigliani-Miller theorem).

Williams also anticipated the Modigliani-Miller theorem.

(This is an application at the economy level of the Modigliani-Miller theorem, discussed in Lecture 5.)

Along with Merton Miller, he formulated the important Modigliani-Miller theorem in corporate finance.

But as Dr. Litan argues, the Modigliani-Miller theorem "clarified what it was that explains the difference."

Irrelevance of Current Profits to Investment (Modigliani-Miller theorem)

The composition of equity and debt and its influence on the value of the firm is much debated and also described in the Modigliani-Miller theorem.

Investment under "certainty" is initially considered (Fisher separation theorem, "theory of investment value", Modigliani-Miller theorem).

Before the Modigliani-Miller theorem was published in 1958 it was generally assumed that companies could raise capital cheaply by borrowing or raise it safely by issuing more stock.

One interpretation of the Modigliani-Miller theorem is that taxes and regulation are the only reasons for investors to care what kinds of securities firms issue, whether debt, equity, or something else.

(See Balance sheet, WACC, Fisher separation theorem; but, see also the Modigliani-Miller theorem.)

The Modigliani-Miller theorem (of Franco Modigliani, Merton Miller) is a theorem on capital structure, arguably forming the basis for modern thinking on capital structure.

"Financial economics", at least formally, also considers investment under "certainty" (Fisher separation theorem, "theory of investment value", Modigliani-Miller theorem) and hence also contributes to corporate finance theory.

Today, it is generally accepted that dividend policy is value neutral - i.e. the value of the firm would be the same, whether it issued cash dividends or repurchased its stock (see Modigliani-Miller theorem).

According to the Modigliani-Miller theorem, on the other hand, there is no right ratio, so corporate managers should seek to minimize tax liability and maximize corporate net wealth, letting the debt ratio chips fall where they will.

The theory is used to explain trends in capital structure, stock market valuation, dividend policy, the monetary transmission mechanism, and stock volatility, and provides an alternative to the Modigliani-Miller theorem that has limited descriptive validity in real markets.

Modigliani-Miller theorem for government finance), is an economics proposition asserting that in certain environment, holding fiscal policy constant, alternative paths of the government financial policies have no effect on the sequences for the price level and for real allocations in the economy.

The Modigliani-Miller theorem, proposed by Franco Modigliani and Merton Miller, forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it disregards many important factors in the capital structure decision.

Before the Modigliani-Miller theorem, many economists and corporate executives believed that if a company raised money by selling stock rather than borrowing, its value - based on the price of its securities -would rise because it would appeal to investors who thought the company was less risky than others with large debts.