Summary and review ofPrinciples of Corporate Finance

Reviewed by Diario de un Inversor · UpdatedJune 13, 2026

Our review

Known in academia simply as «Brealey & Myers», this MIT text stands alongside Ross as the canonical corporate finance reference. First published in 1981, it has grown through more than a dozen revisions to incorporate decades of financial research. What sets it apart from its main competitor is the emphasis on economic intuition behind the mathematical models: Brealey and Myers explain why the CAPM works, not just how to compute it, and subject the assumptions underlying each tool to critical scrutiny. The structure covers present value and asset valuation, investment and financing decisions, risk management, dividend policy, and international capital markets. Franklin Allen, added as co-author in later editions, strengthened coverage of behavioural finance and corporate governance. The most persistent critique — shared with Ross — is that the theoretical framework rests on efficient market and rational agent assumptions that empirical research has repeatedly challenged. Even so, «Principles of Corporate Finance» remains the most complete text for understanding the conceptual foundations of the field, and its expository clarity makes it more accessible than other textbooks at the same level.

Key takeaways

• An asset's value is the present value of its future cash flows discounted at a rate that reflects their risk.
• The CAPM is not an absolute truth — it is a useful simplification that assumes efficient markets and perfect diversification.
• Investment and financing decisions are conceptually separable, even if they influence each other in practice.
• Understanding a model's limitations is as important as knowing how to apply it.

Fact

The first edition of «Principles of Corporate Finance» was published by McGraw-Hill in 1981; the thirteenth edition appeared in 2024, making it one of the longest-running finance textbooks in publishing history.