Modigliani–Miller theorem
E483085
The Modigliani–Miller theorem is a foundational result in corporate finance stating that, under certain idealized conditions, a firm's value is unaffected by its capital structure or how it is financed.
All labels observed (2)
| Label | Occurrences |
|---|---|
| Modigliani–Miller theorem canonical | 2 |
| Modigliani–Miller capital structure irrelevance proposition | 1 |
How this entity was disambiguated
This entity first appeared as the object of triple T4958134 — resolving that mention is where its identity was fixed. The disambiguator weighed these candidate entities and picked the highlighted one (or “None”, minting a new entity). This is how homonymy is resolved: the same surface form can point to different entities.
NED1
Entity disambiguation (via context triple)
gpt-5-mini-2025-08-07
Target entity: Modigliani–Miller theorem Context triple: [Franco Modigliani, notableWork, Modigliani–Miller theorem]
-
A.
Fisher separation theorem
The Fisher separation theorem is a foundational result in financial economics stating that a firm's investment decision can be made independently of its owners' consumption preferences, focusing solely on maximizing the present value of the firm.
-
B.
The Theory of Corporate Finance
The Theory of Corporate Finance is a comprehensive textbook by economist Jean Tirole that systematically develops modern corporate finance theory using tools from contract theory and information economics.
-
C.
"The Nature of the Firm"
"The Nature of the Firm" is a foundational 1937 economic essay by Ronald Coase that explains why firms exist and how transaction costs shape their size and structure.
-
D.
Coase theorem
The Coase theorem is an economic theory stating that if property rights are well-defined and transaction costs are negligible, private bargaining will lead to an efficient allocation of resources regardless of the initial assignment of rights.
-
E.
Lucas asset pricing model
The Lucas asset pricing model is a foundational rational expectations framework in macro-finance that explains asset prices through representative-agent intertemporal consumption choices under uncertainty.
- F. None of above. chosen
- G. Unsure - the case is ambiguous/there is not enough information to decide.
NED2
Entity disambiguation (via description)
gpt-5-mini-2025-08-07
Target entity: Modigliani–Miller theorem Target entity description: The Modigliani–Miller theorem is a foundational result in corporate finance stating that, under certain idealized conditions, a firm's value is unaffected by its capital structure or how it is financed.
-
A.
Fisher separation theorem
The Fisher separation theorem is a foundational result in financial economics stating that a firm's investment decision can be made independently of its owners' consumption preferences, focusing solely on maximizing the present value of the firm.
-
B.
The Theory of Corporate Finance
The Theory of Corporate Finance is a comprehensive textbook by economist Jean Tirole that systematically develops modern corporate finance theory using tools from contract theory and information economics.
-
C.
"The Nature of the Firm"
"The Nature of the Firm" is a foundational 1937 economic essay by Ronald Coase that explains why firms exist and how transaction costs shape their size and structure.
-
D.
Coase theorem
The Coase theorem is an economic theory stating that if property rights are well-defined and transaction costs are negligible, private bargaining will lead to an efficient allocation of resources regardless of the initial assignment of rights.
-
E.
Lucas asset pricing model
The Lucas asset pricing model is a foundational rational expectations framework in macro-finance that explains asset prices through representative-agent intertemporal consumption choices under uncertainty.
- F. None of above. chosen
Statements (47)
| Predicate | Object |
|---|---|
| instanceOf |
capital structure irrelevance proposition
ⓘ
theorem in corporate finance ⓘ |
| alsoKnownAs |
MM theorem
NERFINISHED
ⓘ
capital structure irrelevance theorem NERFINISHED ⓘ |
| assumption |
individuals and firms can borrow and lend at the same risk-free rate
ⓘ
investment policy is fixed and independent of financing ⓘ no agency costs ⓘ no bankruptcy costs ⓘ no taxes ⓘ no transaction costs ⓘ perfect capital markets ⓘ symmetric information ⓘ |
| contributedTo | development of modern capital structure theory ⓘ |
| coreClaim |
a firm’s total value depends on the cash flows generated by its assets, not on how those assets are financed
ⓘ
the value of a firm is independent of its capital structure under certain assumptions ⓘ |
| countryOfOrigin |
United States of America
ⓘ
surface form:
United States
|
| extendedBy |
Modigliani–Miller theorem with corporate taxes
NERFINISHED
ⓘ
Modigliani–Miller theorem with personal taxes NERFINISHED ⓘ |
| field |
corporate finance
ⓘ
financial economics ⓘ |
| hasLimitation |
does not fully apply in the presence of asymmetric information
ⓘ
does not hold exactly when taxes, bankruptcy costs, or agency costs are significant ⓘ |
| hasProposition |
Proposition I
NERFINISHED
ⓘ
Proposition II NERFINISHED ⓘ |
| historicalSignificance | considered a foundational result in modern corporate finance ⓘ |
| implies |
any change in capital structure is offset by a change in the cost of equity so that firm value is unchanged
ⓘ
weighted average cost of capital is constant with respect to leverage under its assumptions ⓘ |
| influenced |
agency theory of capital structure
ⓘ
pecking order theory of capital structure ⓘ trade-off theory of capital structure ⓘ |
| methodology | arbitrage argument between levered and unlevered firms ⓘ |
| namedAfter |
Franco Modigliani
NERFINISHED
ⓘ
Merton H. Miller NERFINISHED ⓘ |
| Proposition I | firm value is independent of leverage in a world without taxes ⓘ |
| Proposition II | cost of equity increases linearly with leverage due to higher financial risk ⓘ |
| publicationYear | 1958 ⓘ |
| publishedIn | The American Economic Review NERFINISHED ⓘ |
| relatesToConcept |
arbitrage
ⓘ
capital structure ⓘ cost of debt ⓘ cost of equity ⓘ firm value ⓘ leverage ⓘ weighted average cost of capital ⓘ |
| usedIn |
analysis of optimal capital structure
ⓘ
corporate finance teaching ⓘ valuation of levered and unlevered firms ⓘ |
How these facts were elicited
The pipeline generated the facts above by prompting gpt-5.1 with this entity's name + description and the instruction below.
Instruction
You are a knowledge base construction expert. Given a subject entity and a description of it, return factual statements that you know for the subject as a JSON list of dictionaries(triples), where keys must be "subject", "predicate" and "object". The number of facts may be very high, between 25 to 50 or more, for very popular subjects. For less popular subjects, the number of facts can be very low, like 5 or 10. # Requirements - If you don't know the subject at all, return an empty list. - If the subject is not a named entity, return an empty list. - Include at least one triple where predicate is "instanceOf". - Do not get too wordy. - Separate several objects into multiple triples with one object.
Input
Subject: Modigliani–Miller theorem Description of subject: The Modigliani–Miller theorem is a foundational result in corporate finance stating that, under certain idealized conditions, a firm's value is unaffected by its capital structure or how it is financed.
Referenced by (3)
Full triples — surface form annotated when it differs from this entity's canonical label.
this entity surface form:
Modigliani–Miller capital structure irrelevance proposition