How firms raise and deploy capital.
11 topics · 14 curated works
No prior grounding assumed.
New Evidence and Perspectives on Mergers
Gregor Andrade, Mark Mitchell & Erik Stafford · 2001
Surveys merger activity across the 1973-1998 waves and finds acquisitions create modest combined value on average but that the gains accrue…
Assumes you know the vocabulary.
The Capital Structure Puzzle
Stewart C. Myers · 1984
Argues firms follow a pecking order of internal funds, then debt, then equity as a last resort, rather than targeting a fixed debt ratio, because…
Primary sources and full treatments.
The Cost of Capital, Corporation Finance and the Theory of Investment
Franco Modigliani & Merton H. Miller · 1958
Proves that, absent taxes and other frictions, a firm's total market value is independent of how it splits financing between debt and equity, because…
+11 more at this level
12 of 14 works
Gregor Andrade, Mark Mitchell & Erik Stafford
Surveys merger activity across the 1973-1998 waves and finds acquisitions create modest combined value on average but that the gains accrue overwhelmingly to target shareholders, with acquirers roughly breaking even.
link checked 17 Sept 2026Stewart C. Myers
Argues firms follow a pecking order of internal funds, then debt, then equity as a last resort, rather than targeting a fixed debt ratio, because information asymmetry makes external financing progressively more costly to raise.
link checked 17 Sept 2026Franco Modigliani & Merton H. Miller
Proves that, absent taxes and other frictions, a firm's total market value is independent of how it splits financing between debt and equity, because investors can replicate any capital structure themselves through personal borrowing.
link checked 17 Sept 2026Michael C. Jensen & William H. Meckling
Models the firm as a nexus of contracts between managers and outside shareholders and debtholders, showing that separating ownership from control creates agency costs that capital structure and compensation design exist to reduce.
link checked 17 Sept 2026Michael C. Jensen
Argues that managers holding free cash flow beyond what profitable projects require tend to waste it on low-return acquisitions or empire-building, and that debt disciplines this by pre-committing cash to creditors.
Merton H. Miller
Revisits the Modigliani-Miller capital structure propositions after the 1980s leveraged buyout wave and argues the tax deductibility of interest, not any inherent superiority of debt, explains most of the era's leverage gains.
link checked 17 Sept 2026Steven N. Kaplan
Tracks buyouts from the 1980s boom into the early 1990s and finds most stayed in private-equity or LBO-related ownership rather than defaulting or reversing, against the era's narrative that the leverage involved was universally excessive.
link checked 17 Sept 2026Steven N. Kaplan & Richard S. Ruback
Tests discounted cash flow valuation against actual transaction prices in highly leveraged transactions and finds DCF estimates using realistic assumptions come within about 10 percent of the value the market actually paid.
link checked 17 Sept 2026Jeremy C. Stein
Shows that when a firm's shares are mispriced, financially constrained managers should sometimes deviate from net-present-value maximisation, buying back undervalued stock or scaling back investment when overvalued, because catering to current mispricing can be rational.
link checked 17 Sept 2026Jeremy C. Stein
Models headquarters as a banker allocating scarce capital among divisions competing for funds, and argues this winner-picking is a genuine advantage of diversified firms over standalone companies that must raise capital externally.
link checked 17 Sept 2026Tim Opler, Lee Pinkowitz, René M. Stulz & Rohan Williamson
Firms with strong growth opportunities and riskier cash flows hold more cash relative to assets, and the data fit a precautionary trade-off between the cost of holding liquid reserves and the cost of being forced to external markets, more than a strict agency story.
link checked 17 Sept 2026Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer & Robert Vishny
Comparing dividend policy across 33 countries, finds shareholders in countries with strong legal protection extract cash from firms as dividends to limit insider expropriation, while payouts are lower and more discretionary where investor protection is weak.
link checked 17 Sept 2026