Modiglani – Miller Hypothesis – Explained

Academic Research on Modiglani-Miller Hypothesis Multidimensional Risk and theModiglianiMiller Hypothesis, Resek, R. W. (1970). Multidimensional Risk and the ModiglianiMiller Hypothesis.The Journal of Finance,25(1), 47-51. 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. This paper examines the proof of Proposition I in the work of Modigliani and Miller (MM). Two cases are considered: first, the case where the value of the levered firm is larger than that of the unlevered one; second, the case where the value of the levered firm is smaller than that of the unlevered one. This article shows that the amount borrowed is greater than the amount envisaged by MM, and that the proof of Proposition I is slightly altered. An extension of theModigliani–MillerTheorem to stochastic economies with incomplete markets and interdependent securities, DeMarzo, P. M. (1988). An extension of the Modigliani-Miller Theorem to stochastic economies with incomplete markets and interdependent securities.Journal of Economic Theory,45(2), 353-369. This paper investigates the Modigliani-Miller theorem extension to a multiperiod, stochastic economy with incomplete markets and perfect foresight. This study demonstrates that firms have no incentive to trade securities in equilibrium; further, any such trading does not alter the set of equilibrium allocations. Determinants of capital structure, Thies, C. F., & Klock, M. S. (1992). Determinants of capital structure.Review of Financial Economics,1(2), 40-52. The administrative costs of corporate bankruptcy: A note, Ang, J. S., Chua, J. H., & McConnell, J. J. (1982). The administrative costs of corporate bankruptcy: A note.The Journal of Finance,37(1), 219-226. This study examines the effect of capital structure and firm quality on firm value of selected BSE listed Indian hospitality firms over a time frame of 2001-15. The findings of the study reveal a significant relationship of firm value with firm quality, leverage, liquidity, size and economic growth. The study shows that Modigliani miller theorem of capital structure irrelevance does not hold for Indian hospitality sector. Multidimensional Risk and theModiglianiMiller Hypothesis: Comment, BenZion, U. (1971). Multidimensional Risk and the ModiglianiMiller Hypothesis: Comment.The Journal of Finance,26(4), 959-962. Derivatives, Corporate Hedging, and Shareholder Wealth:Modigliani–MillerForty Years Later, Krawiec, K. D. (1998). Derivatives, Corporate Hedging, and Shareholder Wealth: Modigliani-Miller Forty Years Later.U. Ill. L. Rev., 1039. In this article, the author demonstrates that a broad rethinking of the basic principles of corporate law as applied to corporate derivatives hedging is neither necessary nor warranted. The study also demonstrate, through both a theoretical and empirical analysis, that because many potential benefits may flow to corporate shareholders due to firm-level hedging, the corporate hedging decision is a business decision just like many other decisions impacting shareholder welfare that are commonly made by corporate management. Life-cycle effects on corporate returns on retentions, Grabowski, H. G., & Mueller, D. C. (1975). Life-cycle effects on corporate returns on retentions.The Review of Economics and Statistics, 400-409. Understanding bilateral exchange rate volatility, Devereux, M. B., & Lane, P. R. (2003). Understanding bilateral exchange rate volatility.Journal of International Economics,60(1), 109-132. This paper develops an empirical model of bilateral exchange rate volatility. Announcement effects of withdrawn security offerings: Evidence on the wealth redistributionhypothesis, Officer, D. T., & Smith, R. L. (1986). Announcement effects of withdrawn security offerings: Evidence on the wealth redistribution hypothesis.Journal of Financial Research,9(3), 229-238. This paper employs the comparison period returns approach to examine issuance and withdrawal announcement effects for stock portfolios of firms announcing equity or debt issues that are subsequently withdrawn. The paper aims to show that security price changes at the time an issue is announced or withdrawn prevent wealth redistributions between insiders and outsiders. A rational justification of the pecking orderhypothesisto the choice of sources of financing, Due Hoang Quan, V. (2002). A rational justification of the pecking order hypothesis to the choice of sources of financing.Management Research News,25(12), 74-90. This article proposes a rational justification to the pecking order hypothesis through the establishment of its relationship to the paradox ModiglianaMiller proposition I. implications of this rational justification to the pecking order hypothesis are also briefly discussed. A General Formula for the WACC, Farber, A., Gillet, R. L., & Szafarz, A. (2006). A General Formula for the WACC. This literature clarifies the relationship between the adjusted present value (APV), and the weighted average cost of capital (WACC) different approaches by offering a general formula for the WACC. This formula encompasses earlier results obtained by Modigliani and Miller (1963) and Harris and Pringle (1985).