Knowra Merton Miller Merton Miller Merton Miller (1923–2000) was an American economist who helped develop the Modigliani–Miller theorem on corporate finance and shared the 1990 Nobel Memorial Prize in Economic Sciences.
Modigliani–Miller theorem : A corporate-finance theorem stating that, under specified idealized conditions, a firm’s value is independent of its debt-equity mix. Miller and Franco Modigliani jointly established the result that defined his most influential work.
Homemade leverage : An investor’s use of personal borrowing or lending to adjust the leverage of an investment portfolio. It lets investors reproduce a firm’s financing choice without relying on the firm to make it.
Franco Modigliani : An Italian-American economist whose work on consumption, saving, and corporate finance earned him the 1985 economics Nobel Prize. Modigliani was Miller’s coauthor on the theorem and shared the 1990 Nobel with him.
Modigliani–Miller propositions : A set of results relating corporate value, leverage, and the cost of capital under assumptions about markets and taxes. The propositions are the specific arguments Miller and Modigliani developed across their foundational papers.
Trade-off theory of capital structure : A theory that firms balance the tax benefits of debt against expected costs of financial distress. It explains financing choices by adding real-world costs absent from the irrelevance baseline.
Capital structure : The mix of debt, equity, and other securities a company uses to finance its operations and investments. Miller’s theorem asks whether this financing mix changes a firm’s total value.
Financial leverage : The use of borrowed money to finance assets, magnifying both potential returns and financial risk. Miller analyzed whether leverage changes firm value or merely reallocates risk and returns.
Harry Markowitz : An American economist who formulated modern portfolio theory and shared the 1990 economics Nobel Prize. Markowitz shared the prize with Miller for foundational work in financial economics.
Irving Fisher : An American economist whose theories of interest, capital, and intertemporal choice shaped modern economics. Fisher’s separation of investment decisions from financing choices foreshadowed a key Modigliani–Miller insight.
Pecking order theory : A theory that firms prefer internal funds, then debt, and issue equity last because of information asymmetries. It offers a different account of financing patterns than value irrelevance under ideal markets.
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