Introduction
Corporate finance theory has not yet determined the consequences of fragmenting a firm’s probability distribution of future market value into classes of securities. Modigliani- Miller (1958) demonstrate that when production-investment decisions are held fixed. the value of a firm is
invariant to the composition of its capital structure given a perfect capital market (frictionless and perfectly competitive) and no taxes.1 Fama-Miller (1972. pp. 167-170) further demonstrate that under the added condition of complete protective covenants or ‘me-first rules’ the values of a firm’s
individual securities are invariant to capital structure changes. However, the