The independence hypothesis suggests that the total market value of the firm's outstanding securities is unaffected by its capital structure.

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According to the independence hypothesis, the total market value of a firm's outstanding securities is determined solely by its expected cash flows, and is not influenced by its capital structure. This means that changes in the firm's mix of debt and equity will have no effect on its overall market value. However, this hypothesis has been challenged by some empirical studies, which have found evidence of a negative relationship between leverage and firm value.

The Independence Hypothesis Suggests That the Total Market Value of the Firm's