Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Corporate Finance and the Legacy of Miller and Modigliani
Journal of Economic Perspectives
(pp. 135–147)
(Complimentary)
Abstract
[This is a comment on "The Modigliani-Miller Propositions after Thirty Years" by Merton H. Miller in this same issue.] The influence of the Modigliani-Miller (1958) propositions on capital structure and the Miller-Modigliani (1961) theses on dividend policy permeates almost all aspects of financial economics to this day. In this commentary, I shall focus on the influence of Miller's and Modigliani's contributions on a couple of key areas in corporation finance, and review research progress by later contributors. Broadly speaking, these two themes can be summarized as: (A) integrated tax- and information-related considerations in capital structure and dividend policy choices; and (B) the impact of inflation and nominally denominated debt contracts on the valuation of corporate equity.Citation
Bhattacharya, Sudipto. 1988. "Corporate Finance and the Legacy of Miller and Modigliani." Journal of Economic Perspectives 2 (4): 135–147. DOI: 10.1257/jep.2.4.135JEL Classification
- G13 Contingent Pricing; Futures Pricing; option pricing
- G14 Information and Market Efficiency; Event Studies; Insider Trading
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G33 Bankruptcy; Liquidation
- G35 Payout Policy
- H25 Business Taxes and Subsidies including sales and value-added (VAT)