Tax-adjusted Modigliani-Miller implied postwar corporate debt levels were too low
Evidence
When the Modigliani-Miller proposition on the irrelevance of capital structure was adjusted to take into account the tax advantages of debt financing, it suggested that the American corporations of the 1950s and the 1960s were operating at levels of debt that were too low Similarly, the tax disadvantages of dividends by comparison with capital gains suggested that corporate emphasis on the former was irrational. — Donald MacKenzie, An Engine, Not a Camera, 1141
Categorization
- XREF: Connects to the broader financialization literature on the shift from managerial to shareholder-oriented corporate finance. — connects to: Regulation T’s margin limits undercut the arbitrage that Modigliani-Miller assumed — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 194; Tax deductibility of debt subsidizes leveraged buyouts at public expense — Andrew deWaard, Derivative Media: How Wall Street…, 460; Michael Milken’s sole traced academic paper ignored Modigliani and Miller. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1635 (+1 more)
Broader Connections
- Regulation T’s margin limits undercut the arbitrage that Modigliani-Miller assumed
#complicates(0.85) — Donald MacKenzie, An Engine, Not a Camera, 194 - Many financial economists treat Modigliani-Miller as benchmarks rather than empirical claims
#expands(0.80) — Donald MacKenzie, An Engine, Not a Camera, 390 - Tax deductibility of debt subsidizes leveraged buyouts at public expense
#expands(0.72) — Andrew deWaard, Derivative Media, 460 - Michael Milken’s sole traced academic paper ignored Modigliani and Miller.
#responds-to(0.72) — Donald MacKenzie, An Engine, Not a Camera, 1635