The Modigliani and Miller (MM) Propositions: The History of a Failed Foundation for Corporate Finance?
A version of the paper appears in the journal Abacus (2015), Vol.50, No.3, p.279-295
The paper also provides an introduction for “Stock Markets, Investments and Corporate Behavior: A Conceptual Framework of Understanding” by Michael Dempsey (World Scientific, Imperial college Press; ISBN: 978-1-78326-699-9).
27 Pages Posted: 19 Sep 2015
Date Written: September 15, 2015
The Modigliani and Miller (MM) propositions provide a foundation for corporate finance theory. Their adoption, however, has led to a dis-engagement of corporate financial management from the humanity of business as well as from corporate strategic management more broadly. As an outcome, the context within which textbook corporate investment and financial decisions take place is severely distorted from reality. We require the context of behavioural and strategic corporate management if we are to accommodate the reality of business, the behaviour of formalized groups.
Keywords: Modigliani and Miller propositions, net present value, NPV, behavioral finance, investment, cost of capital
JEL Classification: G10, G30, G31, G32
Suggested Citation: Suggested Citation