Irrelevance Proposition

The Irrelevance Proposition in finance states that, in perfect markets without taxes, transaction costs, or other frictions, the value of a firm is unaffected by how it is financed—whether through debt or equity. This means that a company's financing choices do not influence its overall value; investors can create their preferred leverage by buying or selling existing securities. Essentially, the decision on whether to fund a company with debt or equity doesn't change its worth, as no financial structure is inherently more valuable than another in such ideal conditions.