The macroeconomics of Modigliani-Miller

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Modigliani-Miller On Capital Structure: A Post-Keynesian Critique

The celebrated Modigliani-Miller (hereafter MM) proposition that the value of the firm depends on its profitability and not on its capital structure (Modigliani and Miller 1958) is avowedly an application to the field of finance of the doctrine that money is neutral. The broad purpose of this paper is to call into question the claim for the neutrality of money in the particular case of the mone...

Discussion of ‘‘Overinvestment of free cash flow’’

Richardson’s paper is a useful addition to the literature on the relationship between cash flow and investment. His approach to estimating this relationship is a new twist on earlier approaches. Like most of this literature, Richardson finds evidence that firms’ investment decisions are excessively sensitive to current cash flow, suggesting that violations of the Modigliani–Miller assumptions a...

On the Pricing of Contingent Claims and the Modigliani-miller Theorem*

A general formula is derived for the price of a security whose value under specified conditions is a known function of the value of another security. Although the formula can be derived using the arbitrage technique of Black and Scholes, the alternative approach of continuoustime portfolio strategies is used instead. This alternative derivation allows the resolution of some controversies surrou...

Presidential Address: The Corporation in Finance

To produce significant net present value, an entrepreneur has to differentiate her enterprise from the ordinary. To take collaborators with her, she needs to have substantial ownership, and thus financing. But it is hard to raise finance against differentiated assets. So an entrepreneur has to commit to undertake a second transformation, standardization, that will make the human capital in the ...