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Corporate Limited Liability and the Financial Liabilities of Firms

Toporowski, Jan

Authors

Jan Toporowski



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.

Citation

Toporowski, J. (2010). Corporate Limited Liability and the Financial Liabilities of Firms. Cambridge Journal of Economics, 34(5), 885-893. https://doi.org/10.1093/cje/bep072

Journal Article Type Article
Publication Date Sep 1, 2010
Deposit Date Mar 13, 2012
Journal Cambridge Journal of Economics
Print ISSN 0309-166X
Electronic ISSN 1464-3545
Publisher Oxford University Press
Peer Reviewed Peer Reviewed
Volume 34
Issue 5
Pages 885-893
DOI https://doi.org/10.1093/cje/bep072


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