Fisher separation theorem
- Fisher separation theorem
In economics, the Fisher separation theorem asserts that the objective of a will be the maximization of its present value, regardless of the preferences of its owners. The theorem therefore separates management's "productive opportunities" from the entrepreneur's "market opportunities". It was proposed by — and is named after — the economist Irving Fisher.
The Fisher separation theorem states that:
* the firm's investment decision is independent of the preferences of the owner;
* the investment decision is independent of the financing decision.
* the value of a capital project (investment) is independent of the mix of methods – equity, debt, and/or cash – used to finance the project.
Fisher showed the above as follows:
#The firm can make the investment decision — i.e. the choice between productive opportunities — that maximizes its present value, independent of its owner's investment preferences.
#The firm can "then" ensure that the owner achieves his optimal position in terms of "market opportunities" by funding its investment either with borrowed funds, or internally as appropriate.
External links
* [http://cepa.newschool.edu/het/essays/capital/fisherinvest.htm Irving Fisher's Theory of Investment] , The History of Economic Thought, The New School
* [http://www.in-the-money.com/artandpap/I%20Present%20Value.doc Great Moments in Financial Economics: Present Value] , Prof. Mark Rubinstein, Haas School of Business
* [http://www.encycogov.com/A2MonitorSystems/AppA2MonitorSystems/AppEtoA2PerfCapMark/Model_PerfCapMarket.asp Model: Perfect capital market - Fisher separation theorem] , Dr. Henrik Mathiesen, encycogov.com
* [http://www.investopedia.com/terms/f/fishersseparationtheorem.asp Fisher's Separation Theorem] , investopedia.com
Wikimedia Foundation.
2010.
Look at other dictionaries:
Fisher's separation theorem — The firm s choice of investments is separate from its owner s attitudes towards investments. Also refered to as portfolio separation theorem. The New York Times Financial Glossary The notion that a firm s choice of investments is separate from… … Financial and business terms
Portfolio separation theorem — An investor s choice of a risky investment portfolio is separate from his attitude towards risk. Related:Fisher s separation theorem. The New York Times Financial Glossary … Financial and business terms
portfolio separation theorem — Theory that an investor s choice of a risky investment portfolio is separate from his attitude towards risk. Related: Fisher s separation theorem. Bloomberg Financial Dictionary … Financial and business terms
Fisher's Separation Theorem — A theory stating that: 1. A firm s choice of investments are separate from its owner s attitudes towards the investments. 2. It is possible to separate a firm s investment decisions from the firm s financial decisions. This theory says a firm s… … Investment dictionary
Irving Fisher — Infobox Scientist name = Irving Fisher caption = Irving Fisher, 1927 birth date = Birth date|1867|2|27|mf=y birth place = Saugerties, New York, U.S.A. death date = Death date and age|1947|4|29|1867|2|27|mf=y death place = New York City, New York … Wikipedia
Modigliani-Miller theorem — The Modigliani Miller theorem (of Franco Modigliani, Merton Miller) forms the basis for modern thinking on capital structure. The basic theorem states that, in the absence of taxes, bankruptcy costs, and asymmetric information, and in an… … Wikipedia
Outline of finance — The following outline is provided as an overview of and topical guide to finance: Finance – addresses the ways in which individuals, businesses and organizations raise, allocate and use monetary resources over time, taking into account the risks… … Wikipedia
Corporate finance — Corporate finance … Wikipedia
List of theorems — This is a list of theorems, by Wikipedia page. See also *list of fundamental theorems *list of lemmas *list of conjectures *list of inequalities *list of mathematical proofs *list of misnamed theorems *Existence theorem *Classification of finite… … Wikipedia
List of economics topics — This aims to be a complete list of the articles on economics. It does not include articles about economists, who are listed in the list of economists. NOTOC A * Accounting Accounting reform Actuary Adaptive expectations Adverse selection Agent… … Wikipedia
