Modigliani–Miller theorem

Modigliani–Miller theorem(MM hypothesis) A theory of corporate finance, first advanced by Franco Modigliani and Merton Miller in 1958, which holds that the capital structure of a firm has, under certain assumptions, no effect on the firm’s value. The theorem states that, in a perfect market with no taxation or costs of financial distress, neither the relative levels of debt and equity in a firm, nor its dividend policy, would affect the market value. In real-world markets, this is by no means the case.

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