Stewart Myers and the MIT School of Real Options and Capital Structure

Abstract

The thinking and writings of America's most accomplished living corporate finance scholar, MIT professor Stewart Myers, are presented as “a life in three Acts.” Starting with Stew's collaboration with Stanford's Alex Robichek on capital structure and valuation in Act I, the scene then shifts to the subjects of corporate strategy and “real options,” and their import for both valuation and investment and financing decisions. And following an Act III that explores the effects of information costs on capital structure and financing choices, the Epilogue recounts Stew's late forays (with colleague James Read) into the question of risk capital—that is, how much, as well as what kinds of, capital do companies need to support their operations and strategic investment?As the article says in closing,Stew's work can be seen as ending where it began. The truly important goal in designing a company's financial and capital structure, as virtually all of his work during the past nearly 60 years has tried to show, is to help ensure that corporate managers are making the best investment and operating decisions. Which in turn brings us back full circle to the first principle of modern corporate finance. For, as we saw earlier when discussing M&M and the Chicago school theory, it is those investment decisions that are the primary source of long‐run corporate efficiency and value.