The content of MM theory is briefly described in the main content of MM theory

The main content of MM theory, briefly describe the main content of MM theoryMM theory is a classic theory of Western capital structure. It reveals the significance of the composition of financing methods and the value of liabilities in the capital structure. However, the high degree of abstraction and harsh assumptions of this theory make it lose its application value.

However, subsequent scholars have been much more useful in the development of his theory.

MM theory is especially the trade-off theory, incentive theory and information asymmetry theory. to bring it closer to the real situation. MM theory has a certain reference value for the selection of corporate financing methods.

For example. The optimal capital structure of an enterprise should be to choose the most appropriate point between the tax benefits of debt and the cost of financial crisis, bankruptcy and cost caused by rising debt; Due to the debt and ** on the managers offered different agitation. The MM theory should encourage firms to borrow moderately.

to force managers to work hard. avoid bankruptcy; Debt financing is an active market. Equity financing is the opposite.

So in the conditions of a market economy. Enterprises should follow the financing sequence of "internal capital - issuance of bonds or borrowing - issuance**". MM theory: These important theories are not only valuable for the financing decisions of enterprises in the Quad countries.

It has important reference significance for China's development of the capital market, the establishment of a modern enterprise system, and the improvement of the enterprise governance structure.

The basic assumptions of the <>mm theory are: 1The business risk of the enterprise is measurable, and the enterprise with the same business risk is at the same risk level; 2.

Current and future investors have exactly the same EBIT estimates of the company's future, i.e., investors' expectations of the company's future earnings and the risks to achieving those returns are the same; 3.**The market is well-established and there are no transaction costs; 4.Investors can borrow at the same interest rate as companies; 5.

No matter how much debt is borrowed, the liabilities of the company and individuals are risk-free, so the interest rate of the debt is the risk-free interest rate; 6.The cautious EBIT expected by investors remains unchanged, that is, it is assumed that the growth rate of the enterprise is zero, so that all cash flows are annuities; 7.The company's dividend policy is not related to the value of the company, and the issuance of new debt by the company does not affect the market value of existing debt.

MM theory is known as the "cornerstone theory of corporate finance", and this theory is about financing decisions. Xiang Shuai calls this theory the horizon theory of corporate financing.

The two M's are the first letters of the names of the two authors, Miller and Modigliani Modigian. Miller also shared the Nobel Prize with Markowitz and Sharp in 1990 for his contributions to MM theory. Modigliani did not win the Nobel Prize because he had passed away before.

Modified "MM" Theory: The earlier "MM" theory, which was seriously detached from reality, especially the assumption that capital could move freely and that there was no corporate income tax.

Five years later, the two masters relaxed their assumptions and proposed a modified "mm" theory of the existence of corporate income tax. The main argument is roughly as follows: after taking into account income tax, the higher the debt of the old bank, the lower the weighted average cost of the company, the higher the income or total value of the company, and the optimal capital structure is the ratio of debt capital to 100% of the capital structure.

MM Theory: An Economic Thought.