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On the Separability of Real and Financial Decisions

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dc.contributor.authorHerrero de Egaña Espinosa de los Monteros, Alfonso
dc.contributor.authorSoria Bravo, Carmen
dc.contributor.authorMuñoz Cabanes, Alberto
dc.date.accessioned2026-02-17T10:37:55Z
dc.date.available2026-02-17T10:37:55Z
dc.date.issued2016-05-12
dc.descriptionThe registered version of this article, first published in “International Advances in Economic Research 22, 211–224", is available online at the publisher's website: https://doi.org/10.1007/s11294-016-9578-8
dc.descriptionLa versión registrada de este artículo, publicado por primera vez en “International Advances in Economic Research 22, 211–224", está disponible en línea en el sitio web del editor: https://doi.org/10.1007/s11294-016-9578-8
dc.description.abstractThe financial manager faces two basic problems: first, the firm’s investment or capital budgeting decision, and second, the financing decision. Capital investment and financing decisions are typically analyzed independently. Capital budgeting criteria proceeds under the simplest possible assumption about financing, namely all-equity financing. The only link between investment and financing decisions is the cost of capital. The basic idea behind Modigliani and Miller’s famous proposition I is that in perfect markets, changes in capital structure do not affect value. As long as the total cash flow generated by the firm’s assets is unchanged by capital structure, value is independent of capital structure. This paper is the first attempt to prove that leverage affects the mathematical structures of the cash flow of financing, and that different mathematical structures of financing cash flows may change the total cash flows generated by the firm or the project, thus altering the value of the firm even in perfect markets. The purpose of this paper is to explore the validity of the separation rule through net present value (NPV) and internal rate of return (IRR) rules, as representatives of academic and business practice, and compare their results with simulations that will include the financial decision of the firm. A singular experiment proving that we can change the IRR or NPV of an investment modifying the financial structure cannot be used to affirm a universal statement, but it can be used to show that a theory is wrong.en
dc.description.provenanceMade available in DSpace on 2026-02-17T10:37:55Z (GMT). No. of bitstreams: 1 On the Separability_ALFONSO HERRERO DE E.pdf: 583252 bytes, checksum: f449cd8425c4afd3249652a2986bc5c1 (MD5) Previous issue date: 2016-05-12en
dc.description.versionversión publicada
dc.identifier.citationHerrero de Egaña, A., Soria Bravo, C. & Muñoz Cabanes, A. On the Separability of Real and Financial Decisions. Int Adv Econ Res 22, 211–224 (2016). https://doi.org/10.1007/s11294-016-9578-8
dc.identifier.doihttps://doi.org/10.1007/s11294-016-9578-8
dc.identifier.eissn1573-966X
dc.identifier.issn1083-0898
dc.identifier.urihttps://hdl.handle.net/20.500.14468/31870
dc.journal.titleInternational Advances in Economic Research
dc.journal.volume22
dc.language.isoen
dc.page.final224
dc.page.initial211
dc.publisherSpringer
dc.relation.centerFacultad de Ciencias Económicas y Empresariales
dc.relation.departmentEconomía Aplicada y Estadística
dc.rightsinfo:eu-repo/semantics/closedAccess
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/4.0/deed.es
dc.subject53 Ciencias Económicas
dc.subject.keywordsFinancing decisionen
dc.subject.keywordsCapital investmenten
dc.subject.keywordsCash flowsen
dc.subject.keywordsCorporate financeen
dc.titleOn the Separability of Real and Financial Decisionsen
dc.typeartículoes
dc.typejournal articleen
dspace.entity.typePublication
relation.isAuthorOfPublication8939ccff-5d15-4f2f-ada4-52687238a28a
relation.isAuthorOfPublication6800ee0d-b387-4fb2-b3a9-f1a7be2d0810
relation.isAuthorOfPublication.latestForDiscovery8939ccff-5d15-4f2f-ada4-52687238a28a
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