The Capital Structure through the Modigliani and Miller Model

  •  Ferdinando Giglio    


The Modigliani-Miller theorem is not only his most important contribution to the theory of finance, but it is one of the most important results in the last half century of evolution of the financial economy, which among other things has certainly not been poor in contributions. important.

The Modigliani-Miller theorem concerns the financing choices of firms, and in particular the choice between debt and shares. It identifies the conditions under which the choice of issuing debt or shares to finance a given level of investments does not affect the value of companies, and therefore in which there is no optimal level of debt compared to the companies' own means. Therefore, it belongs to a class of surprising theorems of "neutrality" or "indifference" that exist in economics: these are theorems that show the irrelevance of a choice that at first sight would seem very important, such as that on the degree of debt of firms. Other theorems were developed after this: Trade-off, Pricing order and Market Timing.

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