MODIGLANI-MILLER HYPOTHESIS
\mˌɒdɪɡlˈɑːnɪmˈɪlə ha͡ɪpˈɒθəsˌɪs], \mˌɒdɪɡlˈɑːnɪmˈɪlə haɪpˈɒθəsˌɪs], \m_ˌɒ_d_ɪ_ɡ_l_ˈɑː_n_ɪ_m_ˈɪ_l_ə h_aɪ_p_ˈɒ_θ_ə_s_ˌɪ_s]\
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Proposition that a firm's capital cost is independent from the capital type employed in an efficient capital market. Debt, ordinary shares or common stock sold, retained dividend earnings, or any combination of these finance the firm's capital needs, not affecting its market value. This concept focuses on what investors look for: earnings quality, expected return rate, and associated risks. Little focus is put on the firm's dividend policy or how leveraged it is. Capital market imperfections and government's taxation policies effect causes worry among firms. Nobel laureates Italian economist Franco Modigliani (1918) and the US economist Merton H. Miller (1923) proposed this. Refer to leverage.
By Henry Campbell Black
Word of the day
basidiomycota
- comprises fungi bearing the spores on basidium: Gasteromycetes (puffballs); Tiliomycetes (comprising orders Ustilaginales (smuts) and Uredinales (rusts)); Hymenomycetes (mushrooms; toadstools; agarics; bracket fungi); in some classification systems considered a division of kingdom comprises fungi bearing spores on a basidium; includes Gasteromycetes (puffballs) Tiliomycetes comprising the orders Ustilaginales (smuts) and Uredinales (rusts) Hymenomycetes (mushrooms, toadstools, agarics bracket fungi).