Rubinstein and the M&M Capital Structure-Dividend Policy Theorems

Abstract

Rubinstein criticizes both the Modigliani & Miller capital structure theorem and dividend policy theorem explained in M&M [6] and M&M [4]. He criticizes the M&M theorems in six points. They are similarity with some former opinions, firm value and stock value confusion, additional assumptions requirement opinion, general rejection of the capital structure irrelevancy, importance of separation opinion between dividend and retained earnings, and conflict between the M&M [6] and M&M [4] articles about dividend irrelevancy opinion. They do not accept the similarity assertion. After my study on Fisher [2], Williams [9], and Morton’s opinions in Rubinstein [8], I believe that, it could be thought that Rubinstein is right. Rubinstein also seems right about the conflict between the M&M [6] and M&M [4] articles. The other assertions of Rubinstein could be seen as a brain training. The M&M accept in advance that the M&M theorem is an innovation and a new opinion.