IDEAS home Printed from https://ideas.repec.org/a/bla/jacrfn/v17y2005i1p106-111.html
   My bibliography  Save this article

Leverage

Author

Listed:
  • Merton H. Miller

Abstract

In his 1990 Nobel Prize address, the “father of modern finance” begins by discussing the benefits of debt financing and hen goes on to discuss potential costs. Although certainly capable of excesses, private capital markets have self‐correcting mechanisms that limit corporate “overleveraging.” Contrary to popular perception, corporate leveraging does not increase risk for the economy as a whole, and the financial difficulties of highly leveraged companies involve “mainly private, not social costs.” (And provided the Chapter 11 process doesn't get in the way, debt often plays the socially constructive role of eliminating excess capacity.) Finally, regulations designed to reinforce capital markets' built‐in controls against overleveraging are generally not only unnecessary but positively harmful to the economy.

Suggested Citation

  • Merton H. Miller, 2005. "Leverage," Journal of Applied Corporate Finance, Morgan Stanley, vol. 17(1), pages 106-111, January.
    • Handle: RePEc:bla:jacrfn:v:17:y:2005:i:1:p:106-111
    DOI: 10.1111/j.1745-6622.2005.020_1.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1745-6622.2005.020_1.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1745-6622.2005.020_1.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Merton H. Miller, 1989. "The Modigliani‐Miller Propositions After Thirty Years," Journal of Applied Corporate Finance, Morgan Stanley, vol. 2(1), pages 6-18, March.
    2. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lim, Steve C. & Mann, Steven C. & Mihov, Vassil T., 2017. "Do operating leases expand credit capacity? Evidence from borrowing costs and credit ratings," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 100-114.
    2. Drees, Burkhard & Eckwert, Bernhard, 2000. "Leverage and the price volatility of equity shares in equilibrium," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(2), pages 155-167.
    3. Lang, Larry & Ofek, Eli & Stulz, Rene M., 1996. "Leverage, investment, and firm growth," Journal of Financial Economics, Elsevier, vol. 40(1), pages 3-29, January.
    4. Hal Varian, 1993. "A Portfolio of Nobel Laureates: Markowitz, Miller and Sharpe," Journal of Economic Perspectives, American Economic Association, vol. 7(1), pages 159-169, Winter.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Elif Acar & Gamze Vural & Emin Hüseyin Çetenak, 2020. "Evidence for Financial Hierarchy Theory in Capital Structure Decisions: Data from BIST Companies," Bogazici Journal, Review of Social, Economic and Administrative Studies, Bogazici University, Department of Economics, vol. 34(1), pages 29-50.
    2. Mierzejewski, Fernando, 2008. "The Allocation of Economic Capital in Opaque Financial Conglomerates," MPRA Paper 9432, University Library of Munich, Germany.
    3. Mike Dempsey, 2014. "The Modigliani and Miller Propositions: The History of a Failed Foundation for Corporate Finance?," Abacus, Accounting Foundation, University of Sydney, vol. 50(3), pages 279-295, September.
    4. Stewart C. Myers, 2001. "Capital Structure," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 81-102, Spring.
    5. Ardalan, Kavous, 2017. "Capital structure theory: Reconsidered," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 696-710.
    6. Ahmed Nahar Al Hussaini, 2018. "Factors Affecting Debt to Equity Mixture in Kuwait, Bahrain and Oman," International Journal of Asian Social Science, Asian Economic and Social Society, vol. 8(12), pages 1204-1218, December.
    7. Geoffrey Shuetrim & Philip Lowe & Steve Morling, 1993. "The Determinants of Corporate Leverage: A Panel Data Analysis," RBA Research Discussion Papers rdp9313, Reserve Bank of Australia.
    8. M. Bellalah, 2000. "The Cost of Capital, Information Costs and the Modigliani-Miller Analysis," THEMA Working Papers 2000-29, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    9. Harold M. Somers, 1991. "Leverage: The Tax Incentives," UCLA Economics Working Papers 625, UCLA Department of Economics.
    10. David Gordon, 2014. "Linkages in Capital Structure Theory and Economics," Research in Applied Economics, Macrothink Institute, vol. 6(3), pages 43-55, September.
    11. Suhaila, Mat Kila & Wan Mahmood, Wan Mansor, 2008. "Capital Structure and Firm Characteristics: Some Evidence from Malaysian Companies," MPRA Paper 14616, University Library of Munich, Germany.
    12. Oana Toader, 2015. "Estimating the impact of higher capital requirements on the cost of equity: an empirical study of European banks," International Economics and Economic Policy, Springer, vol. 12(3), pages 411-436, September.
    13. Michael Dempsey, 2015. "Stock Markets, Investments and Corporate Behavior:A Conceptual Framework of Understanding," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number p1007, January.
    14. Wolfgang Schultze & Martin Meyer, 2005. "Die Kapitalflussrechnung in der Unternehmensbewertung: Bewertungskalkül und Gestaltungshinweise," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 16(3), pages 289-324, September.
    15. MacMinn Richard D., 2005. "On Corporate Risk Management and Insurance," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 1(1), pages 1-24, June.
    16. Graff, Richard A. & Kairys Jr., Joseph P., 2005. "Property Rights and Corporate Finance," Working Papers in Economics 174, University of Gothenburg, Department of Economics.
    17. Ryen, Glen T. & Vasconcellos, Geraldo M. & Kish, Richard J., 1997. "Capital structure decisions: What have we learned?," Business Horizons, Elsevier, vol. 40(5), pages 41-50.
    18. Tiago Cardao-Pito, 2017. "Organizations as Producers of Operating Product Flows to Members of Society," SAGE Open, , vol. 7(3), pages 21582440177, August.
    19. Ignacio Munyo, 2004. "The Determinants of Capital Structure: Evidence from an Economy without Stock Market," Econometric Society 2004 Latin American Meetings 267, Econometric Society.
    20. Innes, Robert, 1987. "Adverse Selection And Tax Externalities In A Model Of Entrepreneurial Investment," Working Papers 225812, University of California, Davis, Department of Agricultural and Resource Economics.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jacrfn:v:17:y:2005:i:1:p:106-111. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1078-1196 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.