Limited liability and corporate efficiency

Kentaro Asai

International Review of Law and Economics, 2020, vol. 62, issue C

Abstract: This paper argues a controlling owner’s limited liability can help a regulator correct the externalities a firm imposes. It suggests limited liability prohibits a controlling owner from self-dealing with an external investor and enhances business transparency by limiting the set of financial contracts that are privately feasible, allowing an uninformed regulator to acquire private information that is required to induce efficiency. It also predicts the diversity of corporate regulation and capital structure observed in practice.

Keywords: Law and finance; Corporate governance; Limited liability; Incomplete contract; Capital structure; Property rights (search for similar items in EconPapers)
JEL-codes: K12 K20 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:62:y:2020:i:c:s014481881930170x

DOI: 10.1016/j.irle.2019.105886

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