CHICAGO -- Merton H. Miller, a "romantic warrior of ideas," "champion of free markets," and Nobel laureate in economics, changed dramatically the practice of corporate finance and thinking on derivatives.
Mr. Miller, a professor emeritus at the Graduate School of Business, University of Chicago, died of lymphoma June 3 at his home in Chicago. He was 77.
"When I was at business school, we used to refer to him as the professor of everything," said Rex A. Sinquefield, chairman and chief investment officer at Dimensional Fund Advisors Inc., Santa Monica, Calif. Mr. Sinquefield was a student of Mr. Miller's. Since DFA's founding in 1981, Mr. Miller had been a director on the board of its mutual fund company, renowned for its pioneering small-cap indexing.
"He was a scholar's scholar," Mr. Sinquefield added.
His academic work has had profound and lasting impact in the real world of corporate finance, the stock market and derivatives.
In corporate finance, Mr. Miller collaborated with Franco Modigliani to produce two famous theorems, for which they both at different times won the Nobel prize in economics. Their "irrelevant" theorems on corporate debt and dividend policy became foundations of modern corporate finance.
One M&M proposition was condensed to the tart phrase "debt doesn't matter." That is, capital structure is irrelevant to the valuation of a corporation.
Junk-bond explosion
That proposition wound up providing the intellectual rationale for the corporate junk-bond explosion that began in the 1980s, said Eugene M. Lerner, president of Disciplined Investment Advisors Inc., Evanston, Ill. That included the use of leveraged buyouts and other highly debt-ladened capital structures that financed countless mergers and acquisitions in bigger and bigger deals.
"They certainly provided the basis for buyouts that became so popular," said Mr. Lerner, who is also a professor of finance at the Kellogg Graduate School of Management, Northwestern University, Evanston.
Also, Mr. Miller, working with Mr. Modigliani, pioneered another then-radical idea that dividend policy doesn't matter in the valuation of a corporation or its stock price.
"The impact on thinking (of both the debt and dividend ideas) was very controversial when he proposed them," Mr. Lerner said. "But he carried the day" and the ideas now are broadly put into practice.
"He was not just a scholar, but a romantic warrior of good ideas, an effectual warrior," added Mr. Sinquefield, who also called him a "champion of free markets," noting Mr. Miller's work around the world to assist in developing competitive capital markets.
In 1990, the Nobel prize committee identified the differing contributions of Mr. Miller, in modern finance, and Harry M. Markowitz and William F. Sharpe in modern portfolio theory, by awarding each of them Nobel prizes in economics. The branch of economics they pioneered was belatedly recognized, commented Bruce I. Jacobs, principal at Jacobs Levy Equity Management Inc., Roseland, N.J..
In his later years especially, Mr. Miller worked on derivatives. "He helped advance clear thinking about derivatives," said Mr. Sinquefield.
Mr. Miller was a member of the board of the Chicago Mercantile Exchange, where he had been a director since 1990. He had been a director of the Chicago Board of Trade from 1983 to 1985.
Mr. Miller was a member of steering committee of the Group of 30 derivatives project, formed to recommend improvements in risk management control for global institutions and capital markets.
Well-rounded
Mr. Miller also was a connoisseur of beer, who enjoyed trying beers from around the world.
"When he won the Nobel prize, we had beer for him at the party, not wine," said Barbara Bache, associate director, communications, at the Graduate School of Business. "When he got his chair (as professor), we had a beer tasting."
Mr. Miller is survived by his wife, Katherine, and by three daughters. Private services were held June 7. The University of Chicago plans to have a memorial service in Rockefeller Chapel on campus in three or four months, said Ms. Bache.
