In Modigliani and Miller's most basic model, the independence hypothesis, implies that a firm cannot create value by manipulating capital structure.

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In Modigliani and Miller's independence hypothesis, they argue that a firm's value is unaffected by its capital structure because investors can create their own leverage through personal borrowing. Therefore, there is no advantage to the firm in changing its capital structure in order to create value.

In Modigliani and Miller's Most Basic Model, the Independence Hypothesis