Modigliani–Miller Theorem

Anne P. Villamil

doi:10.1057/978-1-349-95189-5_2455

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Book chapter

Modigliani–Miller Theorem

Anne P. Villamil

The New Palgrave Dictionary of Economics, pp.8921-8926

Palgrave Macmillan UK

02/15/2018

DOI: 10.1057/978-1-349-95189-5_2455

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Abstract

The Modigliani–Miller theorem provides conditions under which a firm’s financial decisions do not affect its value. The theorem is one of the first formal uses of a no arbitrage argument and it focused the debate about firm capital structure around the theorem’s assumptions, which set the conditions for effective arbitrage. The search for the source of the ‘failure of irrelevance’ has led to important advances in the nature of financial structure, and more fundamentally to the types of frictions that would cause agents to have different market opportunities, information sets or commitment frictions.

Agency problems

Arbitrage

Bankruptcy

Capital gains

Control rights

Debt versus equity

Debt–equity ratio

Dividend policy

Finance

Imperfect information

Incomplete contacts

Information revelation

Insider trading

Law of one price

Leasing vs. buying

Miller, M

Modigliani, F

Modigliani–Miller theorem

Monitoring

Optimal capital structure

Optimal contracts

Separating equilibrium

Separation of ownership and control

Shareholder voting rights

Signalling models of equity

Taxation of capital income

Verification costs

Details

Title: Subtitle: Modigliani–Miller Theorem
Creators: Anne P. Villamil
Resource Type: Book chapter
Publication Details: The New Palgrave Dictionary of Economics, pp.8921-8926
Publisher: Palgrave Macmillan UK; London
DOI: 10.1057/978-1-349-95189-5_2455
Language: English
Date published: 02/15/2018
Academic Unit: Economics
Record Identifier: 9984380722802771

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