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The trading of unlimited liability bank shares: the Bagehot Hypothesis

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  • Charles Hickson
  • John Turner

Abstract

From the mid-1820s, banks became the first business sector in Great Britain and Ireland to be granted the right to form freely on an unlimited liability joint stock basis. Walter Bagehot, the renowned contemporary banking expert, warned that shares in such banks would ultimately be owned by widows, orphans and other impecunious individuals. An alternative hypothesis is that the governing bodies of these banks constrained by special legal restrictions on share trading acted effectively to prevent such shares being transferred to the less wealthy members of society. We test both conjectures using the archives of an Irish joint stock bank. The results do not support Bagehot's hypothesis, but instead indicate that shares continued to be owned by wealthy individuals.

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File URL: http://www.cbr.cam.ac.uk/pdf/WP241.pdf
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Bibliographic Info

Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp241.

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Date of creation: Sep 2002
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Handle: RePEc:cbr:cbrwps:wp241

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Web page: http://www.cbr.cam.ac.uk/

Related research

Keywords: unlimited liability; corporate governance; joint stock companies; banking;

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  1. Winton, Andrew, 1993. " Limitation of Liability and the Ownership Structure of the Firm," Journal of Finance, American Finance Association, vol. 48(2), pages 487-512, June.
  2. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  3. Carr, Jack L & Mathewson, G Frank, 1988. "Unlimited Liability as a Barrier to Entry," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 766-84, August.
  4. W. D. Rubinstein, 1977. "The Victorian Middle Classes: Wealth, Occupation, and Geography," Economic History Review, Economic History Society, vol. 30(4), pages 602-623, November.
  5. Grossman, Peter Z, 1995. "The Market for Shares of Companies with Unlimited Liability: The Case of American Express," The Journal of Legal Studies, University of Chicago Press, vol. 24(1), pages 63-85, January.
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