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Don't Buy Shares without It: Limited Liability Comes to American Express

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  • Mark I. Weinstein

Abstract

What is the value of limited liability to the corporation? Financial economists take the value of limited liability for granted, and there has been little empirical study of its value. Few natural experiments allow us to estimate the value of limited liability. One of these, however, is the case of the American Express Company. It appears that American Express was the last publicly traded unlimited liability firm in the United States, becoming a corporation with limited liability only in 1965. In this article, I examine the effects of adopting limited liability on the value of American Express shares and on their risk. Consistent with economic theory and previous empirical research, I find little effect on the firm's value and a reduction in both systematic and unsystematic risk. This article also contributes to the empirical methodology of event studies. (c) 2008 by The University of Chicago. All rights reserved.

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  • Mark I. Weinstein, 2008. "Don't Buy Shares without It: Limited Liability Comes to American Express," The Journal of Legal Studies, University of Chicago Press, vol. 37(1), pages 189-227, January.
    • Handle: RePEc:ucp:jlstud:v:37:y:2008:i:1:p:189-227
    DOI: 10.1086/588261
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    References listed on IDEAS

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    1. Esty, Benjamin C., 1998. "The impact of contingent liability on commercial bank risk taking," Journal of Financial Economics, Elsevier, vol. 47(2), pages 189-218, February.
    2. Scholes, Myron & Williams, Joseph, 1977. "Estimating betas from nonsynchronous data," Journal of Financial Economics, Elsevier, vol. 5(3), pages 309-327, December.
    3. Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, vol. 7(2), pages 197-226, June.
    4. Mark I. Weinstein, 2003. "Share Price Changes and the Arrival of Limited Liability in California," The Journal of Legal Studies, University of Chicago Press, vol. 32(1), pages 1-25, January.
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    Cited by:

    1. Pat Akey & Ian Appel, 2021. "The Limits of Limited Liability: Evidence from Industrial Pollution," Journal of Finance, American Finance Association, vol. 76(1), pages 5-55, February.
    2. Ilgmann, Cordelius, 2011. "The advent of corporate limited liability in Prussia 1843," CAWM Discussion Papers 46, University of Münster, Münster Center for Economic Policy (MEP).

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