Modigliani–Miller theorem

The Modigliani–Miller theorem (often abbreviated as the M&M theorem) is a foundational principle in corporate finance that was proposed by economists Franco Modigliani and Merton Miller in the 1950s. It addresses the relationship between the capital structure of a company (i.e., the mix of debt and equity financing) and its overall value. The theorem is based on several key assumptions, including perfectly efficient markets, no taxes, no bankruptcy costs, and rational behavior by investors.