2. A Framework for Financial Innovation: Managing Capital Structure

While this volume is not designed to be a technical guide or a textbook, this chapter offers a basic grounding in the foundational theories that have shaped modern finance. It is a good starting place for readers who want a formal introduction to the science behind the numbers. More casual readers, however, may want to skip ahead to subsequent chapters, which focus on real-world applications of financial technologies.

In 1958, Franco Modigliani and Merton Miller published their famous paper on the irrelevance of capital structure for total firm value—and in the process, they ignited a revolution in corporate finance.1 Their great contribution was to provide a clear conceptual ...

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