The Modigliani and Miller Theorem and Market Efficiency

Sheridan Titman

No 8641, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Most of the recent literature on risk management and capital structure assumes that markets are perfect, i.e., efficient and complete. This paper presents anecdotal evidence that suggests that different capital markets (e.g., debt, equity and warrants markets) may not be perfectly integrated, and discusses the implications of this lack of integration on financing strategies. I argue that although models that assume perfect markets are sufficient to explain cross-sectional differences in financing and risk management choices within an economy, that issues relating to market conditions may be necessary to explain differences in these choices across countries and across time.

Date: 2001-12
New Economics Papers: this item is included in nep-fmk and nep-mac
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Published as Titman, Sheridan. "The Modigliani And Miller Theorem And The Integration Of Financial Markets," Financial Management, 2002, v31(1,Spring), 101-115.

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