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Corporate Finance & M&A

Modigliani-Miller Theorem

Also called: MM theorem, capital structure irrelevance

Modigliani and Miller proved that in a world without taxes, bankruptcy costs or information gaps, capital structure doesn't affect firm value — the pie is the same however you slice it. The result matters not because those conditions hold but because they don't: it tells you that any real benefit of leverage must come specifically from taxes, distress costs, or signalling, and forces the argument onto those grounds.

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