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Corporate Limited Liability and the Financial Liabilities of Firms

Toporowski, Jan (2010) 'Corporate Limited Liability and the Financial Liabilities of Firms.' Cambridge Journal of Economics, 34 (5). pp. 885-893.

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Abstract

This paper examines the recent proposal to eliminate the limited liability of company owners, in the context of the overall composition of the financial liabilities of firms. The traditional neo-classical view of the firm holds that the relative price of different financing only affects the way in which firms finance their activities. However, the paper argues that the behaviour of different firms is affected by the composition of their financial liabilities. The elimination of limited liability for equity will tend to shift the structure of corporate liabilities towards debt instruments, which do have limited liability, or towards regular insurance premiums that would reallocate that liability among firms or shareholders. The paper concludes that this shift in liabilities may stabilise financial markets, and this may eliminate some of the increasing concentration on speculation that is a feature of financial market capitalism.

Item Type: Articles
SOAS Departments & Centres: Faculty of Law and Social Sciences > Department of Economics
ISSN: 14643545
DOI (Digital Object Identifier): 10.1093/cje/bep072
Depositing User: Jan Toporowski
Date Deposited: 13 Mar 2012 14:36
URI: http://eprints.soas.ac.uk/id/eprint/13282

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