The Modigliani and Miller Theorem and Market Efficiency

26 Pages Posted: 14 Dec 2001 Last revised: 25 Oct 2010

See all articles by Sheridan Titman

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: December 2001

Abstract

Most of the recent literature on risk management and capital structure assumes that markets are perfect, i.e., efficient and complete. This paper presents anecdotal evidence that suggests that different capital markets (e.g., debt, equity and warrants markets) may not be perfectly integrated, and discusses the implications of this lack of integration on financing strategies. I argue that although models that assume perfect markets are sufficient to explain cross-sectional differences in financing and risk management choices within an economy, that issues relating to market conditions may be necessary to explain differences in these choices across countries and across time.

Suggested Citation

Titman, Sheridan, The Modigliani and Miller Theorem and Market Efficiency (December 2001). NBER Working Paper No. w8641. Available at SSRN: https://ssrn.com/abstract=294080

Sheridan Titman (Contact Author)

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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