Beruflich Dokumente
Kultur Dokumente
In 1958, Modigliani and Miller presented a theory supporting the irrelevance of capital
structure in firms, when considering the market value of the company and wellbeing
of both shareholders and debtholders. In their point of view, if markets are efficient
the source of financing should not be relevant and the way to increase firm value is by
earning more and it also depends on the risk incurred by the firm.
Conclusion:
Even though there are several critics regarding Modigliani and Millers Capital Structure
Theory, it is important for us in order to understand what matters and what does not so
that, afterward, by relaxing some of the assumptions, we can study what really impacts
the optimal capital structure of a firm.
References:
- Corporate Finance (10th Edition) by Stephen Ross & Others
- http://www.efinancemanagement.com/financial-leverage/capital-structuretheory-modigliani-and-miller-mm-approach
- Theoretical Finance course documents