Invoking the same assumptions as Modigliani and Miller (1963), we demonstrate that their debt-only corner solution is not a unique equilibrium and furthermore that an alternative equilibrium exists in which capital structure is irrelevant for determining shareholder value. Our equilibrium...

Modigliani and Miller (1963) present an equity-quantity shifting equilibrating process to achieve an optimal firm value. However, in the era in which they derived their various propositions regarding the relation between a firm's value and its capital structure, well-capitalized takeover...