Modigliani and Miller Propositions: Choices for Capital Structure for Firms Undergoing Merger and Acquisition Transactions

Modigliani and Miller Propositions: Choices for Capital Structure for Firms Undergoing Merger and Acquisition Transactions Essay example
Masters
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Finance & Accounting
Pages 17 (4267 words)
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Modigliani and Miller Propositions: Choices for Capital Structure for Firms undergoing Merger and Acquisition Transactions [Student Name] [Course Title] [Instructor Name] [Date] Modigliani and Miller Propositions: Choices for Capital Structure for Firms undergoing Merger and Acquisition Transactions “Most research on capital structure has focused on public non financial corporations with access to U.S…

Introduction

This paper presents a critical discussion on how and to what extent the capital structure of firms in today’s modern corporate world is formed on the basis of the propositions presented by Modigliani and Miller (1958). The paper discusses the importance given to these propositions when there are instances, such as mergers and acquisitions between two companies, which require raising new capital or reshuffling the existing capital structure. Before going into the details of the same, it is pertinent that a comprehensive overview of the theorem as put forward by Modigliani and Miller (1958) is presented. The Modigliani - Miller Theorem and its Implications The Modigliani – Miller theorem or proposition is regarded as a key element in the development of today’s corporate finance. The bottom line of the Modigliani and Miller theorem is the proposition of irrelevance which argue that the value of a firm is not affected by the type of financial choices preferred by that firm (Villamil 2006). ...
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