F. Modigliani and M. Miller, “The Cost of Capital, Corporation Finance, and the Theory of Investment,” The American Economic Review, Vol. 48, No. 3, June 1958, pp. 261-297.
has been cited by the following article:
TITLE: The Modigliani-Miller Theorem with Financial Intermediation
AUTHORS: John F. McDonald
KEYWORDS: Modigliani-Miller Theorem, Financial Intermediation, Valuation
JOURNAL NAME: Modern Economy, Vol.2 No.2, May 17, 2011
ABSTRACT: This paper shows that, if firms borrow at an interest rate that is greater than the rate at which they can lend, the value of a firm declines with the amount borrowed. The model assumes the possibility that a firm may go bankrupt, which introduces the need for financial intermediation. A modified version of the homemade lev-erage examples introduced by Modigliani and Miller [2] is used to introduce the concept. A state-preference model is used for a more formal proof.