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For Richer, for Poorer: Bankers' Liability and Risk-taking in New England, 1867-1880

Author

Listed:
  • Peter Koudijs
  • Laura Salisbury
  • Gurpal Sran

Abstract

We study whether banks are riskier if managers have less liability. We focus on New England between 1867 and 1880 and consider the introduction of marital property laws that limited liability for newly wedded bankers. We find that banks with managers who married after a legal change had more leverage, were more likely to "evergreen" loans and violate lending rules, and lost more capital and deposits in the Long Depression of 1873-1878. This effect was most pronounced for bankers with wives from relatively wealthy families. We find no evidence that limiting liability increased firm investment at the county level.

Suggested Citation

  • Peter Koudijs & Laura Salisbury & Gurpal Sran, 2018. "For Richer, for Poorer: Bankers' Liability and Risk-taking in New England, 1867-1880," NBER Working Papers 24998, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:24998
    Note: AP CF DAE
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    Cited by:

    1. Koudijs, Peter & Salisbury, Laura, 2020. "Limited liability and investment: Evidence from changes in marital property laws in the US South, 1840–1850," Journal of Financial Economics, Elsevier, vol. 138(1), pages 1-26.
    2. Haelim Anderson & Daniel Barth & Dong Beom Choi, 2018. "Reducing moral hazard at the expense of market discipline: the effectiveness of double liability before and during the Great Depression," Staff Reports 869, Federal Reserve Bank of New York.
    3. 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.

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913

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