Modigliani–Miller theorem
theorem that in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the enterprise value of a firm is unaffected by how that firm is financed
The Modigliani–Miller theorem (of Franco Modigliani, Merton Miller) is an influential element of economic theory; it forms the basis for modern thinking on capital structure. The basic theorem states that in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the enterprise value of a firm is unaffected by how that firm is financed. This is not to be confused with the value of the equity of the firm. Since the value of the firm depends neither on its dividend policy nor its decision to raise capital by issuing shares or selling debt, the Modigliani–Miller theorem is often called the capital structure irrelevance principle.
The key Modigliani–Miller theorem was developed for a world without taxes. However, if we move to a world where there are taxes, when the interest on debt is tax-deductible, and ignoring other frictions, the value of the company increases in proportion to the amount of debt used. The additional value equals the total discounted value of future taxes saved by issuing debt instead of equity.
Modigliani was awarded the 1985 Nobel Prize in Economics for this and other contributions.
Miller was a professor at the University of Chicago when he was awarded the 1990 Nobel Prize in Economics, along with Harry Markowitz and William F. Sharpe, for their "work in the theory of financial economics", with Miller specifically cited for "fundamental contributions to the theory of corporate finance".
Historical background
Miller and Modigliani derived and published their theorem when they were both professors at the Graduate School of Industrial Administration (GSIA) of Carnegie Mellon University.
“Modigliani–Miller theorem” enters the record as theorem that in the absence of taxes, bankruptcy costs, agency costs, and asymmetric information, and in an efficient market, the enterprise value of a firm is unaffected by how that firm is financed. Crown Archives preserves that source wording while asking what Modigliani, Miller and theorem can confirm, complicate or overturn.
Why this record matters
“Modigliani–Miller theorem” is worth following because a concise public description often conceals a longer documentary argument. Here, Modigliani, Miller and theorem provides the most credible route into that argument.
Named sources, stable identifiers and responsible institutions provide the strongest route from overview to verifiable evidence. The source revision retrieved here is dated Apr 12, 2026. The linked authority identifier is Q117553. None of the 0 selected statements returned an explicit reference. The first chronological checks are 1985 and 1990.
The absence of detail may reflect summary conventions rather than a lack of surviving documentation. The source lead contains qualifying language; that uncertainty should survive quotation, summary and reuse. Authority statements aid reconciliation but still require their own references, qualifiers and ranks to be checked.
How to read it
Use the entry as an orientation point, then follow its citations and revision history. Names, dates and institutional relationships should be checked against the original record.
- Subject orientation
- Search vocabulary
- Locating named sources
The closest primary source, responsible institution and strongest cited specialist reference.
Three-step research path
- Establish the record: confirm the title “Modigliani–Miller theorem”, its source revision and the description used here.
- Expand the search: follow Modigliani–Miller theorem primary sources, Modigliani–Miller theorem archive and Modigliani research across catalogues and specialist indexes.
- Test the account: compare the strongest cited source with the responsible institution’s current record and note any disagreement.
Questions for further research
- Which source most directly establishes the central claim about “Modigliani–Miller theorem”?
- What terminology or title could unlock a more precise catalogue search?
- Which institution is responsible for the underlying evidence?
Search terms from this dossier
This entry incorporates text from “Modigliani–Miller theorem” on English Wikipedia. Contributors are listed in the page history. Text is available under the Creative Commons Attribution-ShareAlike 4.0 License. Selected authority identifiers and statements are retrieved from Wikidata under CC0; their references and qualifiers remain part of the verification path.