This paper demonstrates that the Modigliani Miller Theorem on capital structure does in general not apply to banks when faced with endogenous liquidity risk in form of bank runs and asset illiquidity. The Modigliani Miller Theorem states that under certain assumptions, firms with different...

2018 marks the 60th anniversary of the publication of Franco Modigliani and Merton Miller's The Cost of Capital, Corporation Finance, and the Theory of Investment. Widely hailed as the foundation of modern finance, their article, which purports to demonstrate that a firm's value is independent...

This paper disproves that the second proposition by Modigliani and Miller (1958), which states that the yield of a firm is an increasing function of the debt/equity ratio. If that proposition were valid, all firms should borrow unlimitedly. This paper points out how M&M manipulated the...

Apart from the static trade-off views, there is the pecking order view in explaining firms' financing decisions. Firms' capital issuing activity can be viewed as selling of financial products (i.e., debt or equity) to buyers, who do not completely know about the products. At asymmetric...

The aim of this article is to provide a comprehensive review on different theories and hypothesis in regard with achieving an optimal capital structure. Many researchers believed that capital structure includes share issuance, private investment, bank debt, business debts, leasing contracts, tax...