who were modigliani and miller and what assumptions are embedded
Business Week recently ran an article on companiesâ debt policies, and the names Modigliani and Miller (MM) were mentioned several times as leading researchers on the theory of capital structure. Briefly, who are MM, and what assumptions are embedded in the MM and Miller models? Answer: Modigliani and Miller (MM) published their first paper on capital structure (which assumed zero taxes) in 1958, and they added corporate taxes in their 1963 paper. Modigliani won the Nobel Prize in economics in part because of this work, and most subsequent work on capital structure theory stems from MM. Here are their assumptions: â¢ Firmsâ business risk can be measured by Ï EBIT , and firms with the same degree of risk can be grouped into homogeneous business risk classes.