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Limited liability and corporate efficiency

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  • Asai, Kentaro

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.

Suggested Citation

  • Asai, Kentaro, 2020. "Limited liability and corporate efficiency," International Review of Law and Economics, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:irlaec:v:62:y:2020:i:c:s014481881930170x
    DOI: 10.1016/j.irle.2019.105886
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    References listed on IDEAS

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    Cited by:

    1. Jiaqi Qin & Yan Sun, 2023. "Unveil the veil of limited liability: Evidence from firm investment," The Financial Review, Eastern Finance Association, vol. 58(3), pages 485-511, August.

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    More about this item

    Keywords

    Law and finance; Corporate governance; Limited liability; Incomplete contract; Capital structure; Property rights;
    All these keywords.

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K20 - Law and Economics - - Regulation and Business Law - - - General

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