Corporate value is unaffected by debt-versus-equity financing mix in perfect markets

Evidence

In the paper, they agued that in what they called a “perfect market” (Modigliani and Miller 1958, p. 268) neither the total market value of a corporation (the sum of the market values of its stocks and bonds) nor the average cost’ to it of capital was affected by its “capital structure” that is, by the extent to which it finances its activities by borrowing (issuing bonds) rather than by issuing stock. — Donald MacKenzie, An Engine, Not a Camera, 175

Categorization

• DEFINE: States the M&M capital-structure irrelevance proposition precisely — central definitional anchor for the whole chapter.
• XREF: connects to: Common-sense intuition predicted debt-equity balance mattered via risk preferences and institutional pressures — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 179; Tax deductibility of debt subsidizes leveraged buyouts at public expense — Andrew deWaard, Derivative Media: How Wall Street…, 460; Levered low-beta portfolios risk instability when group earnings deviate from expectations — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1488 (+1 more)

Broader Connections

• Modigliani-Miller made market-value maximization the test of corporate investment #expands (0.90) — Donald MacKenzie, An Engine, Not a Camera, 1171
• Common-sense intuition predicted debt-equity balance mattered via risk preferences and institutional pressures #responds-to (0.85) — Donald MacKenzie, An Engine, Not a Camera, 179
• Tax deductibility of debt subsidizes leveraged buyouts at public expense #qualifies (0.75) — Andrew deWaard, Derivative Media, 460
• Levered low-beta portfolios risk instability when group earnings deviate from expectations #qualifies (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1488