文档介绍：1
Corporate Finance (Econ 906)
Lecture
Capital Structure
Read: Copeland/Weston – Chapter 15
Brealey and Myers Chapter 17-18
Modigliani and Miller, The Cost of Capital, Corporation Finance, and the Theory of Investment, American Economic Review, 1958, pp 261-97.
Myers, Stewart C., The Capital Structure Puzzle, Journal of Finance, 1984, pp 575-92
Sheridan Titman, The Modigliani and Miller Theorem and the Integration of Financial Markets, Financial Management, Spring 2002, pp 101-115
Miller, M. H., The Modigliani-Miller Propositions After Thirty Years, Journal of Economic Perspectives, Fall 1988 pp 99-120
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Capital Structure
The Capital-Structure Question and The Pie Theory
Maximizing Firm Value versus Maximizing Stockholder Wealth
Financial Leverage and Firm Value
Modigliani and Miller: Proposition I and II - with no taxes and taxes
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M&M (Debt Policy Doesn’t Matter
When there are no taxes and capital markets function well, it makes no difference whether the firm borrows or individual shareholders borrow. Therefore, the market value of pany does not depend on its capital structure.
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MM Irrelevance Arguments - Intuition
The total market value of a firm (debt plus equity) equals the PV of its cash flow stream.
Capital structure determines only the division of the ‘pie’(firm value) among different claim holders but not the size of the pie.
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Assumptions of the Modigliani-Miller (MM) Model
Homogeneous Expectations
Homogeneous Business Risk Classes
Perpetual Cash Flows
Perfect Capital Markets:
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Firms and investors can borrow/lend at the same rate
Equal access to all relevant information
No transaction costs, no cost of bankruptcy
No taxes
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Arbitrage
Suppose two ‘identical’ securities (with the same expected return and risk characteristics) trade at different market prices.
Then there would be an arbitrage opportunity: intelligent arbitrageurs would seek to buy the cheaper security and sell (short) the more expensive one.
Tradin