Modigliani-Miller Hypothesis

The proposition (which was largely responsible for winning Nobel prizes for its proposers) that, in an efficient capital market with no tax distortions, the relative proportion of debt and equity in a corporate capitalization does not affect the total market value of the firm. Corporate financial officers and financial engineers continue to search for market inefficiencies and tax-related opportunities that can lower a corporation's cost of capital in the real world. See Invariance Propositions.

Glossary * M