The Modigliani-Miller Theorems: A Cornerstone of Finance

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: The Modigliani-Miller (MM) theorems are a cornerstone of finance for two reasons. The first is substantive and it stems from their nature of “irrelevance propositions”: by providing a crystal-clear benchmark case where capital structure and dividend policy do not affect firm value, by implication these propositions help us understand when these decisions may affect the value of firms, and why. Indeed, the entire subsequent development of corporate finance can be described essentially as exploring the consequences of relaxing the MM assumptions. The second reason for the seminal importance of MM is methodological: by relying on an arbitrage argument, they set a precedent not only within the realm of corporate finance but also (and even more importantly) within that of asset pricing.

Keywords: Modigliani-Miller theorem; capital structure; leverage; dividend policy (search for similar items in EconPapers)
Date: 2005-05-01
New Economics Papers: this item is included in nep-acc, nep-his, nep-hpe and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Published in BNL Quarterly Review, 2005, vol. 58, pages 237-47

Downloads: (external link)
http://www.csef.it/WP/wp139.pdf (application/pdf)

Related works:
Journal Article: The Modigliani-Miller theorems: a cornerstone of finance (2005)
Journal Article: The Modigliani-Miller theorems: a cornerstone of finance (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:139

Access Statistics for this paper

More papers in CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy Contact information at EDIRC.
Bibliographic data for series maintained by Dr. Maria Carannante ().