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| Subject: Miller and Modigliani The Modigliani-Miller theorem (of Franco Modigliani, Merton Miller) forms the basis for modern thinking on capital structure. The basic theorem states that, under a certain market price process (the classical random walk), in the absence of taxes, bankruptcy costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed. It does not matter if the firm’s capital is raised by issuing stock or selling debt. It does not matter what the firm’s dividend policy is. Therefore, the Modigliani-Miller theorem is also often called the capital structure irrelevance principle. Post Modern Security Analysis By John Schroy, on August 1st, 2009 |  One comment  Security Analysis is the study of facts about negotiable instruments for the purpose of determining whether a particular instrument is appropriate for a specific investor at a particular time and the intrinsic value of the security compared to its market price, if any. The technique has evolved over time with the changing nature of information. In the 21st century, with a flood of open source information and increasingly complex, global markets, new approaches are necessary. August 1st, 2009 | Print Article |  Email Article |  Topics: Benjamin Graham, Bernard Madoff, Black and Scholes, common stock legend, David Dodd, efficient market hypothesis, ERISA, Eugene Fama, gold standard, Graham & Dodd, Harry Markowitz, John Burr Williams, Miller and Modigliani, Moody's, Paul Krugman, Post Modern Security Analysis, Richard Nixon, SEC Rule 10b-18, Standard & Poor's, The Economist, US SEC, W.D. Gann, Warren Buffett, William Sharpe | Category: New Economic Theory | One comment |  Short urlFinancial economic theory By John Schroy, on June 16th, 2009 | Leave a comment  A recent poll of members of the British Chartered Financial Analyst Institute revealed that 77% of its members disagreed that investors acted rationally. This implicit rejection of the Efficient Market Hypothesis has far reaching implications for the structure and management of capital markets, including Modern Portfolio Theory, the use of betas, the justification for index funds, and the M&M Theories. Will the economists that proposed these theories return their Nobel prizes? June 16th, 2009 | Print Article | Email Article | Topics: beta, CAPM, CFA, efficient market hypothesis, index funds, Miller and Modigliani, Modern Portfolio Theory | Category: Economic Theory | Leave a comment | Short urlThe Enron scandal By John Schroy, on July 7th, 2006 | Leave a comment  Unfortunately for society, Jeff Skilling of Enron told the truth according to tenets of moral relativism learned at the Harvard Business School and with McKinsey and Company, when, on being sentenced to decades in prison, he said, “That’s the way the game is played. You win some, you lose some.” Skilling was a representative of corporate executives of his time. He did not work alone, nor was he an isolated ‘bad apple’. July 7th, 2006 | Print Article | Email Article | Topics: Adam Smith, CFA, Corporate Governance, CPA, Derivative Strategy, Enron, executive stock options, Harry Markowitz, Harvard Business School, Jeff Skilling, John Maynard Keynes, Ken Lay, Leverage, Long Term Capital Management, McKinsey, Miller and Modigliani, Myron Scholes, risk, Robert Merton, Sarbanes-Oxley Act, securitization | Category: Security Analysis, featured | Leave a comment | Short urlFeatured articles on inside pages
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