Modigliani and Miller Proposition II - Definition
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Academic Research on Modigliani and Miller Proposition II TheModigliani-Miller propositionsafter thirty years, Miller, M. H. (1988). The Modigliani-Miller propositions after thirty years.Journal of Economic perspectives,2(4), 99-120. The cost of capital, corporation finance and the theory of investment, Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment.The American economic review,48(3), 261-297. A test of Cost of CapitalPropositions, Weston, J. F. (1963). A test of Cost of Capital Propositions.Southern Economic Journal, 105-112. A meanvariance synthesis of corporate financial theory, Rubinstein, M. E. (1973). A meanvariance synthesis of corporate financial theory.The Journal of Finance,28(1), 167-181. This paper studies the adverse selection problem of the Higher Level Scheme (HLS) using a principal agent framework at the regional level. A statepreference model of optimal financial leverage, Kraus, A., & Litzenberger, R. H. (1973). A statepreference model of optimal financial leverage.The journal of finance,28(4), 911-922. The FamaFrench model, leverage, and theModiglianiMiller propositions, Lally, M. (2004). The FamaFrench model, leverage, and the ModiglianiMiller propositions.Journal of Financial Research,27(3), 341-349. For a costofequity model to conform to the ModiglianiMiller costofcapital propositions, any sensitivity coefficients in the model must be related to the firm's leverage. In this paper, the author apply these principles to the FamaFrench model for the cost of equity and develop the relation between its sensitivity coefficients and firm leverage. Portfolio analysis, market equilibrium and corporation finance, Hamada, R. S. (1969). Portfolio analysis, market equilibrium and corporation finance.The Journal of Finance,24(1), 13-31. This paper explores the Modigliani and Miller (M&M) propositions which presents the capital structure irrelevance theorem. The model of this paper comes from Brigham and Houstons Bigbee case using beta, the Hamada transformation and an interest rate function which is crucial, concepts not available to M&M in 1958. We show how the minimization of WACC (weighted average cost of capital) and maximization of stock price give identical solutions and their similarity to M&M Propositions I and II. General proof ofModigliani-Miller propositionsI andIIusing parameter-preference theory, Becker, J. (1978). General proof of Modigliani-Miller propositions I and II using parameter-preference theory.Journal of Financial and Quantitative Analysis,13(1), 65-69. This paper presents the proof of M&M proposition concerning the valuation of the firm and the cost of capital. The paper shows that the proof does not require the usual risk-class or arbitrage assumptions as it depends only on the Fundamental Theorem of Parameter-preference, which states that the riskpremium for security A is a linear combination of its comoments with the market index. Leverage, risk of ruin and the cost of capital, Baxter, N. D. (1967). Leverage, risk of ruin and the cost of capital.the Journal of Finance,22(3), 395-403. This paper is concrened with the Supply-side effect on financial management caused by market imperfections. Using the data of listed companies those take secondary equity offerings between 1993-2007 in Chinas A-share market, the paper examines how the change of regulation policies on SEOs affects cor-porate financing decisions. This paper aims to show equity regulation environment affects corporate financial management. Bankruptcy, limited liability, and theModigliani-Millertheorem, Hellwig, M. F. (1981). Bankruptcy, limited liability, and the Modigliani-Miller theorem.The American Economic Review,71(1), 155-170. What MM have wrought, Weston, J. F. (1989). What MM have wrought.Financial Management, 29-38. This paper explores how much MM transformed the study of finance from an institutional to an economic perspective. This study shows that departures from MM are driven by imperfections, not errors in the logical structure of their model. However, implementation of their models does not yield unambiguous predictions. The impact of the degrees of operating and financial leverage on systematic risk of common stock, Mandelker, G. N., & Rhee, S. G. (1984). The impact of the degrees of operating and financial leverage on systematic risk of common stock.Journal of financial and quantitative analysis,19(1), 45-57. This paper analyses the concpet of beta as an index of systematic risk in capital asset pricing model in a risky security.