Miller and Modigliani Capital Structure

Capital Structure Miller and Modigliani's theorem was first announced in 1958 and is a revolutionary model of corporate finance. M & M's theorem on capital structure argues that in an efficient market without taxation, bankruptcy costs, information asymmetry, the value of a company is not affected by its financing approach. In other words, how the company decides to raise funds, whether through debt or through the use of existing equity does not affect the value of the company. Market Timing and Capital Structure Baker and Wurgler (2002) discusses "market timing" of stocks.

Modigliani and Miller's capital structure theory has two propositions. 1) the total value of the company is independent of its capital structure, 2) the return on equity capital goes up, the first argument of risk is that taxes themselves are the taxes themselves, It is based on the assumption that choosing the capital structure of the company will not convey important information to the market, not before not being received. For Ford and its investors the significance of Modigliani and Miller uses this money to generate more income to raise the company's value as the company can earn a lot of cash by undertaking debt It means that it is necessary. Investors will not react to the rise in the company's debt level until they become excessive, the increase in the value of the company is an increase in sales

The Modigliani-Miller theorem proposed by Franco Modigliani and Merton Miller in 1958 is often considered purely theoretical as it ignores many important elements in the process of capital structure such as fluctuations, but the company's Uncertainty that may occur during the funding process. According to the theorem, in the perfect market, the company's financing method has nothing to do with its value. This result provides the basis for examining real world causes related to capital structure. In other words, the value of a company depends on the capital structure adopted. Other reasons include bankruptcy costs, agency fees, taxes, and information asymmetry. You can then extend this analysis to determine if there is virtually the optimal capital structure. Structure that maximizes corporate value

The sources of capital are also diversified into short-term and long-term financing. The idea of ​​the capital structure of the Modigliani-Miller theorem is caused by the Modigliani-Miller theorem proposed by Franco Modigliani and Merton Miller. They made two discoveries under perfect market conditions. Their first argument is that the value of the company is independent of its capital structure and the second proposal is that the equity cost of the leveraged company is equal to the equity cost of the non- leveraged company and the financial risk premium It is to raise.