Download This PaperProof that MM Proposition I is Illogical
12 Pages Posted: 4 Dec 2020
Date Written: November 20, 2020
Abstract
Despite some initial misgivings, the Modigliani-Miller proposition about the neutrality of the structure of capital was (enthusiastically) accepted by most academics and CEOs, and (reluctantly) agreed by most investors. In this paper we show that by ignoring the bidirectionality between the balance sheet and total revenue the proposition is logically inconsistent.
Keywords: Capital Structure; Cost of Capital; Modigliani-Miller; Finance Theory
JEL Classification: G32, G35, B24, O16
Suggested Citation: Suggested Citation
Mendes, António Marques, Proof that MM Proposition I is Illogical (November 20, 2020). Available at SSRN: https://ssrn.com/abstract=3734325 or http://dx.doi.org/10.2139/ssrn.3734325
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