Limited liability and shares’ pricing: sufficient but not necessary

Paolo Maggioni

No 1115, Openloc Working Papers from Public policies and local development

Abstract: Limited liability has been seen as crucial for the development of capital markets. In this paper I use the CAPM to analyze how a company is priced differently under different liability regimes. I reach the conclusion that as far as the pricing and liquidity of shares is concerned, the positive features of a limited liability regime are common to “pro rata†unlimited liability. The prevalence of the unlimited liability regime over regimes of unlimited liability, prorata (or joint and several) should then be traced in other benefits that limiting liability may bring. Literature and history point to the relationship between bankruptcy procedures and liability regimes as the area where the limited liability regimes may be more cost effective and easier to implement.

Keywords: Corporation; and; Securities; Law (search for similar items in EconPapers)
JEL-codes: K22 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-law
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Persistent link: https://EconPapers.repec.org/RePEc:trn:utwpol:1115

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