Merton Miller

The Modigliani-Miller theorem, published by Franco Modigliani and Merton Miller in 1958, states that under certain idealized conditions (no taxes, bankruptcy costs, or asymmetric information), the value of a firm is independent of how it finances itself. This means the mix of debt and equity does not affect the firm's overall value in a frictionless world.

Miller's work established that capital structure decisions and dividend policy matter only because of market imperfections like taxes, bankruptcy costs, and information asymmetries. His research provided the theoretical benchmark against which real-world financing decisions could be analyzed, earning him the 1990 Nobel Prize shared with Markowitz and Sharpe.

The propositions suggest that the value-creation in financing decisions comes from exploiting market frictions—such as the tax shield benefit of debt—rather than from the financing choice itself. They shifted focus to understanding how factors like taxes, distress costs, and signaling effects determine optimal capital structure.

Beyond the Modigliani-Miller theorem, Miller made important contributions to the theory of corporate dividends and the analysis of financial markets. He spent most of his career at the University of Chicago Booth School of Business, where he helped establish it as a leading center for financial economics research.