Equity finance: matching liability to power

C. A. E. Goodhart and Rosa M. Lastra

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: There is widespread concern that the bonus culture for senior managers in limited liability companies is having adverse effects, e.g. on risk-taking, leverage and lower longer-term investment. The moral hazard of limited liability was appreciated in the 19th century, when unlimited or multiple liability, especially for bankers, was widely adopted. Whereas outside, notably retail, investors still need the protection of limited liability, we advocate moving towards a two-tier equity system, primarily for banks, with insiders, senior managers and others with influence over corporate decisions, becoming subject to multiple liability. But the transition costs of doing so suddenly would be great, so our proposal is to start by applying this initially just to Systemically Important Financial Intermediaries.

Keywords: banking; banks; corporate governance; institutional investors; limited liabiltiy; Senior Management Regime; Tow Tier Equity (search for similar items in EconPapers)
JEL-codes: G30 G32 G39 K20 K22 L14 M14 N20 N22 N23 P10 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2019-01
New Economics Papers: this item is included in nep-cfn, nep-his, nep-hpe and nep-law
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:100058

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