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


  • 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)


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.

Suggested Citation

  • Acheson Graeme G. & Hickson Charles R & Turner John D, 2010. "Does Limited Liability Matter? Evidence From Nineteenth-Century British Banking," Review of Law & Economics, De Gruyter, vol. 6(2), pages 247-273, December.
  • Handle: RePEc:bpj:rlecon:v:6:y:2010:i:2:n:6

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    References listed on IDEAS

    1. Graeme G. Acheson & John D. Turner, 2006. "The impact of limited liability on ownership and control: Irish banking, 1877-1914 -super-1," Economic History Review, Economic History Society, vol. 59(2), pages 320-346, May.
    2. 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 766-784, August.
    3. Kevin Dowd, 2009. "Moral Hazard and the Financial Crisis," Cato Journal, Cato Journal, Cato Institute, vol. 29(1), pages 141-166, Winter.
    4. Michael Collins, 1989. "The banking crisis of 1878," Economic History Review, Economic History Society, vol. 42(4), pages 504-527, November.
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    Cited by:

    1. Graeme G. Acheson & Gareth Campbell & John D. Turner & Nadia Vanteeva, 2015. "Corporate ownership and control in Victorian Britain," Economic History Review, Economic History Society, vol. 68(3), pages 911-936, August.
    2. Gary Gorton & Ellis W. Tallman, 2016. "How Did Pre-Fed Banking Panics End?," NBER Working Papers 22036, National Bureau of Economic Research, Inc.
    3. David Laidler, 2013. "Reassessing the Thesis of the Monetary History," University of Western Ontario, Economic Policy Research Institute Working Papers 20135, University of Western Ontario, Economic Policy Research Institute.
    4. Turner, John D., 2014. "Financial history and financial economics," QUCEH Working Paper Series 14-03, Queen's University Belfast, Queen's University Centre for Economic History.
    5. Button, Richard & Knott, Samual & Macmanus, Conor & Willison, Matthew, 2015. "Desperate adventurers and men of straw: the failure of City of Glasgow Bank and its enduring impact on the UK banking system," Bank of England Quarterly Bulletin, Bank of England, vol. 55(1), pages 23-35.
    6. 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.
    7. Andrew G. Haldane, 2012. "Control Rights (And Wrongs)," Economic Affairs, Wiley Blackwell, vol. 32(2), pages 47-58, June.
    8. Salter, Alexander W. & Veetil, Vipin & White, Lawrence H., 2017. "Extended shareholder liability as a means to constrain moral hazard in insured banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 63(C), pages 153-160.

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