GMO on "Evidence in Favor of Oligopolies and Against Modigliani-Miller"

Latest from GMO [pdf]:

"Modigliani-Miller’s theory on capital structure irrelevance provides a model for explaining corporate profitability. As the theory would have it, if an equity holder wants more profits, he would simply lever up. In their model, higher profits are achieved through higher risk (in the form of leverage) of the entity. In fact, in the real world the opposite is true. We find striking evidence that Messrs. Modigliani and Miller have the sign wrong. Empirically, companies with persistently high profitability have lower leverage, and companies with persistently low profitability have higher leverage (Exhibit 1)."