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K. Arrow, B. Bernheim, M. Feldstein, D. McFadden, J. Poterba and R. Solow, “100 Years of the American Economic Review: The Top 20 Articles,” American Economic Review, Vol. 101, No. 1, 2011, pp. 1-8. doi:10.1257/aer.101.1.1

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.