Merton Miller, 77, leaves legacy of corporate finance research

Merton Miller, a Nobel prize-winning finance professor in the 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 also is irrelevant.

Miller, the Robert R. McCormick Distinguished Service Professor Emeritus of Finance in the Graduate School of Business, and his colleagues at Chicago went on to develop in greater depth the work he had begun with Modigliani. Much of that work was explained by Miller and his faculty colleague Eugene Fama, who co-authored the seminal book The Theory of Finance in 1972.

In 1990, Miller was awarded the Nobel Memorial Prize in Economic Sciences “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 Johns Hopkins University and received a Ph.D. in economics in 1952.

His first academic appointment after receiving his doctorate was at the London School of Economics from 1952 to 1953. From there, he went to Carnegie Mellon University. In 1961, he joined the faculty of the 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, 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 Graduate School of Business and the Edward Eagle Brown Distinguished Service Professor of Finance.

“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 Graduate School of Business and its best spokesman.”

Myron Scholes, Miller’s former research assistant who also became a Nobel laureate, said, “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.’

“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.

Fama, the Robert R. McCormick Distinguished Service Professor of Finance, Miller’s first Ph.D. student at Chicago and a 37-year colleague, said, “Merton Miller epitomized the best of the 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.”

Miller was the author of eight books, including Merton Miller on Derivatives (1997), Financial Innovations and Market Volatility (1991) and Macroeconomics: A Neoclassical Introduction (1974, with Charles Upton).

In a personal biography prepared in 1990, Miller wrote, “Unlike some of my more athletic fellow laureates, the closest I get to recreational exercise these days is watching the Chicago Bears from my season-ticket seats (17 years now) in the south end-zone of frigid Soldier Field.”

Survivors include his wife, Katherine; daughters, Margot Horn and Pamela Chwedyk of Chicago, and Louise Lorber of Evanston, Ill.; and grandsons, Andrew and Eric Horn. His first wife, Eleanor, the mother of his daughters, died in 1969. Arrangements for a memorial service are pending.