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Synthetic unlimited liability

Author

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  • Miller, Stephen Matteo

Abstract

A synthetic analog of unlimited liability exists to curb executive risk-taking. Total shares liability multiplies an executive's fraction of shares held by the costs of restoring the corporation's solvency. I illustrate using Spring 2023 bank failures. Total options liability comes from executives selling a put for each call received.

Suggested Citation

  • Miller, Stephen Matteo, 2024. "Synthetic unlimited liability," Economics Letters, Elsevier, vol. 241(C).
    • Handle: RePEc:eee:ecolet:v:241:y:2024:i:c:s0165176524003057
    DOI: 10.1016/j.econlet.2024.111821
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    More about this item

    Keywords

    Bailouts; Bank failures; Contingent liability; Executive compensation; Unlimited liability;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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