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Does Limited Liability Matter? Evidence From Nineteenth-Century British Banking

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Author Info

  • Acheson Graeme G.

    (Ulster Business School, University of Ulster, N. Ireland)

  • Hickson Charles R

    (Queen’s University Management School, Queen’s University Belfast, N. Ireland)

  • Turner John D

    (Queen’s University Management School, Queen’s University Belfast, N. Ireland)

Abstract

The superiority of the corporation over other organizational forms is typically attributed to the fact that every owner has limited liability. The widely-held, but empirically unsubstantiated, view is that the main advantage of limited liability over extended shareholder liability is that the enforcement costs of the latter generally impedes the tradability and liquidity of stock. We use the rich shareholder-liability experience of nineteenth-century British banking to test this standard view. As well as exploring the means by which unlimited liability was enforced, we examine the impact of liability regimes on the tradability and liquidity of stock. Our evidence suggests that liability rules appear to be irrelevant from the perspective of stock tradability and liquidity.

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Bibliographic Info

Article provided by De Gruyter in its journal Review of Law & Economics.

Volume (Year): 6 (2010)
Issue (Month): 2 (December)
Pages: 247-273

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Handle: RePEc:bpj:rlecon:v:6:y:2010:i:2:n:6

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Cited by:
  1. Andrew G. Haldane, 2012. "Control Rights (And Wrongs)," Economic Affairs, Wiley Blackwell, vol. 32(2), pages 47-58, 06.
  2. Acheson, Graeme G. & Campbell, Gareth & Turner, John D. & Vanteeva, Nadia, 2014. "Corporate ownership and control in Victorian Britain," eabh Papers 14-02, The European Association for Banking and Financial History (EABH).
  3. Foreman-Peck, James & Hannah, Leslie, 2011. "Extreme Divorce: the Managerial Revolution in UK Companies before 1914," Cardiff Economics Working Papers E2011/21, Cardiff University, Cardiff Business School, Economics Section.

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