Proof 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

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

António Marques Mendes (Contact Author)

Universidade de Coimbra ( email )

Av. Dias da Silva, 165
Coimbra, 3004-512
Portugal
+351-239790500 (Phone)

HOME PAGE: http://www.uc.pt/en/feuc

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