Modigliani–Miller theorem

E483085

capital structure irrelevance proposition theorem in corporate finance

The Modigliani–Miller theorem is a foundational result in corporate finance stating that, under certain idealized conditions, a firm's value is unaffected by its capital structure or how it is financed.

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All labels observed (5)

Label	Occurrences
Modigliani–Miller theorem canonical	2
Modigliani–Miller capital structure irrelevance proposition	1
Modigliani–Miller theorem with corporate taxes	1
Modigliani–Miller theorem with personal taxes	1
capital structure irrelevance theorem	1

How this entity was disambiguated

This entity first appeared as the object of triple T4958134 — resolving that mention is where its identity was fixed. The disambiguator weighed these candidate entities and picked the highlighted one (or “None”, minting a new entity). This is how homonymy is resolved: the same surface form can point to different entities.

NED1 Entity disambiguation (via context triple) gpt-5-mini-2025-08-07

Target entity: Modigliani–Miller theorem
Context triple: [Franco Modigliani, notableWork, Modigliani–Miller theorem]

A. Fisher separation theorem
The Fisher separation theorem is a foundational result in financial economics stating that a firm's investment decision can be made independently of its owners' consumption preferences, focusing solely on maximizing the present value of the firm.
B. The Theory of Corporate Finance
The Theory of Corporate Finance is a comprehensive textbook by economist Jean Tirole that systematically develops modern corporate finance theory using tools from contract theory and information economics.
C. "The Nature of the Firm"
"The Nature of the Firm" is a foundational 1937 economic essay by Ronald Coase that explains why firms exist and how transaction costs shape their size and structure.
D. Coase theorem
The Coase theorem is an economic theory stating that if property rights are well-defined and transaction costs are negligible, private bargaining will lead to an efficient allocation of resources regardless of the initial assignment of rights.
E. Lucas asset pricing model
The Lucas asset pricing model is a foundational rational expectations framework in macro-finance that explains asset prices through representative-agent intertemporal consumption choices under uncertainty.
F. None of above. chosen
G. Unsure - the case is ambiguous/there is not enough information to decide.

NED2 Entity disambiguation (via description) gpt-5-mini-2025-08-07

Target entity: Modigliani–Miller theorem
Target entity description: The Modigliani–Miller theorem is a foundational result in corporate finance stating that, under certain idealized conditions, a firm's value is unaffected by its capital structure or how it is financed.

A. Fisher separation theorem
The Fisher separation theorem is a foundational result in financial economics stating that a firm's investment decision can be made independently of its owners' consumption preferences, focusing solely on maximizing the present value of the firm.
B. The Theory of Corporate Finance
The Theory of Corporate Finance is a comprehensive textbook by economist Jean Tirole that systematically develops modern corporate finance theory using tools from contract theory and information economics.
C. "The Nature of the Firm"
"The Nature of the Firm" is a foundational 1937 economic essay by Ronald Coase that explains why firms exist and how transaction costs shape their size and structure.
D. Coase theorem
The Coase theorem is an economic theory stating that if property rights are well-defined and transaction costs are negligible, private bargaining will lead to an efficient allocation of resources regardless of the initial assignment of rights.
E. Lucas asset pricing model
The Lucas asset pricing model is a foundational rational expectations framework in macro-finance that explains asset prices through representative-agent intertemporal consumption choices under uncertainty.
F. None of above. chosen

Statements (47)

Predicate	Object
instanceOf	capital structure irrelevance proposition ⓘ theorem in corporate finance ⓘ
alsoKnownAs	MM theorem ⓘ capital structure irrelevance theorem ⓘ linked to: Modigliani–Miller theorem
assumption	individuals and firms can borrow and lend at the same risk-free rate ⓘ investment policy is fixed and independent of financing ⓘ no agency costs ⓘ no bankruptcy costs ⓘ no taxes ⓘ no transaction costs ⓘ perfect capital markets ⓘ symmetric information ⓘ
contributedTo	development of modern capital structure theory ⓘ
coreClaim	a firm’s total value depends on the cash flows generated by its assets, not on how those assets are financed ⓘ the value of a firm is independent of its capital structure under certain assumptions ⓘ
countryOfOrigin	United States ⓘ linked to: United States of America
extendedBy	Modigliani–Miller theorem with corporate taxes ⓘ linked to: Modigliani–Miller theorem Modigliani–Miller theorem with personal taxes ⓘ linked to: Modigliani–Miller theorem
field	corporate finance ⓘ financial economics ⓘ
hasLimitation	does not fully apply in the presence of asymmetric information ⓘ does not hold exactly when taxes, bankruptcy costs, or agency costs are significant ⓘ
hasProposition	Proposition I ⓘ Proposition II ⓘ
historicalSignificance	considered a foundational result in modern corporate finance ⓘ
implies	any change in capital structure is offset by a change in the cost of equity so that firm value is unchanged ⓘ weighted average cost of capital is constant with respect to leverage under its assumptions ⓘ
influenced	agency theory of capital structure ⓘ pecking order theory of capital structure ⓘ trade-off theory of capital structure ⓘ
methodology	arbitrage argument between levered and unlevered firms ⓘ
namedAfter	Franco Modigliani ⓘ Merton H. Miller ⓘ linked to: Merton Miller
Proposition I	firm value is independent of leverage in a world without taxes ⓘ
Proposition II	cost of equity increases linearly with leverage due to higher financial risk ⓘ
publicationYear	1958 ⓘ
publishedIn	The American Economic Review ⓘ linked to: American Economic Review
relatesToConcept	arbitrage ⓘ capital structure ⓘ cost of debt ⓘ cost of equity ⓘ firm value ⓘ leverage ⓘ weighted average cost of capital ⓘ
usedIn	analysis of optimal capital structure ⓘ corporate finance teaching ⓘ valuation of levered and unlevered firms ⓘ

How these facts were elicited

Referenced by (6)

Full triples — surface form annotated when it differs from this entity's canonical label.

Franco Modigliani → notableWork → Modigliani–Miller theorem ⓘ

Franco Modigliani → notableIdea → Modigliani–Miller capital structure irrelevance proposition ⓘ

linked to: Modigliani–Miller theorem

Fisher separation theorem → relatedTo → Modigliani–Miller theorem ⓘ

Modigliani–Miller theorem → alsoKnownAs → capital structure irrelevance theorem ⓘ

linked to: Modigliani–Miller theorem

Modigliani–Miller theorem → extendedBy → Modigliani–Miller theorem with corporate taxes ⓘ

linked to: Modigliani–Miller theorem

Modigliani–Miller theorem → extendedBy → Modigliani–Miller theorem with personal taxes ⓘ

linked to: Modigliani–Miller theorem

All labels observed (5)

How this entity was disambiguated Show

Statements (47)

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Referenced by (6)

How this entity was disambiguated

How these facts were elicited