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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved