The Times and the Theory

Abstract

The modern corporation is exceedingly complex. The subtlety of its operations and the complexity of its systems has daunted all but the most academically courageous researchers. So many factors could weigh in on the creation of corporate value and the corresponding price of a corporate equity that, until the publication of John Burr Williams’s treatise, financial analytics was regarded as an art rather than a science. Even the financing decisions a corporation could employ to expand was so varied that, until Modigliani and Miller produced their theorem, decisions as to the best capital structure were best left to intuition and business style. Only once a great mind comes along who can simplify the problem and hone our intuition could observers see the forest through the trees and begin to understand the important determinants of corporate value. Ronald Coase’s seminal paper on the essential advantage of the corporate structure was one such high mark in our understanding of corporate finance.