Management Notes

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Modigliani and Miller Approach – MM Approach | Capital Structure Theories

Modigliani and Miller Approach

Modigliani and Miller (MM) Approach


➦ Modigliani and Miller commonly known as MM theory is most acceptable and widely used capital structure theory which support NOI approach and criticize the Net Income theory and Traditional theory of capital structure.

➦ Franco Modigliani and Merton Miller jointly worked on this theory originally published in 1958 entitled “The cost of capital, Corporation finance and the theory of Investment”, received Noble Prize for their contribution.

➦ They argue cost of capital and value form remains constant irrespective of change in capital structure.

➦ MM approach theory of capital structure is categorized as proposition I and proposition II.

Modigliani and Miller (MM) Approach

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