This Week In Finance

"In Memoriam: Merton Miller"

Merton Miller, one of the founding fathers of modern finance passed away on June 3rd. Below are some of the comments made by several of the leaders of the discipline, which were distributed electronically via the Financial Economics Network.

"This is a sad day.

Merton Miller was my teacher, dissertation committee member, mentor and lifelong friend and colleague. He was one of a small handful of founders of modern finance.

We will miss him in the halls of research and policy."

Michael C. Jensen
Jesse Isidor Straus Professor of Business Administration
Harvard Business School

Merton H. Miller, a Nobel prize-winning finance professor at the University of Chicago Graduate School of Business whose pioneering research is one of the cornerstones of modern finance, died Saturday, June 3 at his home in Chicago.

Miller, 77, and fellow Nobel laureate Franco Modigliani, developed the much cited "M&M Theorems" on capital structure and dividend policy that are the foundations of the theory of corporate finance.

In their 1958 paper, "The Cost of Capital, Corporation Finance and the Theory of Investment," Miller and Modigliani showed a firm's value is determined by its investment decisions and not by its financing decisions.

A companion paper, "Dividend Policy, Growth, and the Valuation of Shares," written by Miller and Modigliani in 1961, extended the basic results by showing that, given investment decisions, dividend policy is also irrelevant.

Miller, the Robert R. McCormick Distinguished Service Professor Emeritus of Finance, and his colleagues at Chicago went on to develop in greater depth the work begun by Miller and Modigliani. Much of that work was explained by Miller and University of Chicago business school professor Eugene Fama, who co-authored the seminal book "The Theory of Finance" in 1972.

In 1990, Miller was awarded the Nobel prize in economics "for pioneering work in the theory of financial economics," and for "fundamental contributions to the theory of corporate finance," according to his Nobel citation by the Royal Swedish Academy of Science.

"He helped revolutionize corporate financial practice, changing it from a loose collection of rules to a sophisticated approach to maximizing shareholder value."

Miller was born in Boston and graduated from Boston Latin School. He received an A.B. from Harvard University in 1943, completing his studies in three years. During World War II, he worked as an economist in the Division of Tax Research of the U.S. Treasury Department and then in the Division of Research and Statistics of the Board of Governors of the Federal Reserve System. In 1949, he entered The Johns Hopkins University and received a Ph.D. in economics in 1952.

His first academic appointment after receiving his doctorate was at London School of Economics in 1952-53. From there, he went to Carnegie-Mellon University. In 1961, he joined the faculty of the University of Chicago Graduate School of Business, where he remained for the rest of his career.

He continued teaching after his retirement in 1993. Recently, he taught a symposium on financial regulation for M.B.A., Ph.D. and law school students.

Miller served as a public director of the Chicago Board of Trade from 1983 to 1985, and as a public director of the Chicago Mercantile Exchange from 1990 until his death. As a result of his involvement with the exchanges, Miller's research interests broadened to include the economic and regulatory problems of the financial services industry, and especially of the securities and options exchanges.

"Merton Miller is widely considered to be the founder of modern finance, and the person who fathered the discipline from an institutional field of study to one that is truly a legitimate and well-accepted part of economics and business," said Robert Hamada, dean of the University of Chicago Graduate School of Business.

"He was a strong supporter of the belief that theories are only good if they conform to the real world data," said Hamada, who was hired by Miller in 1966 as a finance professor at Chicago. "He was the epitome of the University of Chicago Graduate School of Business, and its best spokesman."

"He was a visionary, a man of intense curiosity, with a willingness to embrace ambiguity and use his brilliant intuition to overturn a multitude of long-held 'truths'," said Myron Scholes, Miller's former research assistant who went on to become a Nobel laureate himself.

"His research exhibited a marvelous interconnectedness to once seemingly unrelated ideas. He has left us a research legacy that is unsurpassed in financial economics," Scholes said.

Eugene Fama, the Robert R. McCormick Distinguished Service Professor of Finance, Miller's first Ph.D. student at Chicago and a 37-year colleague, says, "Merton Miller epitomized the best of the University of Chicago Graduate School of Business. All who knew him at Chicago and elsewhere recognize him as a path-breaking, world-class scholar, a dedicated teacher who mentored many of the most famous contributors to finance and a graceful and insightful colleague who enhanced the research of all around him."

You may wish to excerpt some of these plaudits and distribute them to students, in order to convey the magnitude of the work done by Professor Miller, and his lasting impact on the discipline. I require students to memorize very few names or dates in the introductory Corpfin course, but Modigliani and Miller, and 1958, are two they must know.