Separation theorem


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Separation theorem

Theory that the value of an investment to an individual is not dependent on consumption preferences. That is, investors will want to accept or reject the same investment projects by using the NPV rule, regardless of personal preference.

Separation Theorem

An economic theory stating that the investment decisions of a firm are independent from the firm's owner's wishes. The Separation Theorem states that the productive value of a firm's management neither affects nor is affected by the owner's business decisions. As a result, the performance of a firm's investments has no relation to how they are financed, whether by stock, debt, or cash. The theorem was devised by economist Irving Fisher. See also: Irrelevance result.
References in periodicals archive ?
In such case the widely discussed separation theorem and the full hedging theorem do not hold.
In Chapter 4 the Fisher Separation Theorem is proved under uncertainty in different cases.
This analysis has shown that the flaw becomes evident in the objective function provided by the separation theorem.