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The Market for Shares of Companies with Unlimited Liability: The Case of American Express

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  • Grossman, Peter Z

Abstract

If share ownership entailed unlimited liability, would there be an active stock market? Some legal scholars have maintained that no liquid stock market could exist. Others have claimed the result would depend on the specific liability rule. But little empirical evidence has been cited to support any single theory. This article tests four theories of the effect of liability rules on stock market behavior through a study of trading in shares of the American Express Company during the 1950s, when these shares carried pro rata unlimited liability. This study shows that American Express stock traded regularly among a diverse group of shareholders and was not deemed especially risky by the market. The evidence suggests that limited liability is not a necessary condition for the functioning of markets for company shares. Copyright 1995 by the University of Chicago.

Suggested Citation

  • Grossman, Peter Z, 1995. "The Market for Shares of Companies with Unlimited Liability: The Case of American Express," The Journal of Legal Studies, University of Chicago Press, vol. 24(1), pages 63-85, January.
    • Handle: RePEc:ucp:jlstud:v:24:y:1995:i:1:p:63-85
    DOI: 10.1086/467952
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    Cited by:

    1. Grossman, Richard & Campbell, Gareth & Turner, John, 2019. "Before the Cult of Equity: New Monthly Indices of the British Share Market, 1829-1929," CEPR Discussion Papers 13717, C.E.P.R. Discussion Papers.
    2. Paolo Maggioni, 2011. "Limited liability and shares’ pricing: sufficient but not necessary," Openloc Working Papers 1115, Public policies and local development.
    3. Paolo Maggioni, 2011. "The introduction of limited liability in nineteenth century England," Openloc Working Papers 1116, Public policies and local development.
    4. Grossman, Richard, 2017. "Stocks for the Long Run: New Monthly Indices of British Equities, 1869-1929," CEPR Discussion Papers 12121, C.E.P.R. Discussion Papers.
    5. Charles Hickson & John Turner, 2002. "The trading of unlimited liability bank shares: the Bagehot Hypothesis," Working Papers wp241, Centre for Business Research, University of Cambridge.
    6. Hickson, Charles R. & Turner, John D. & McCann, Claire, 2005. "Much ado about nothing: the limitation of liability and the market for 19th century Irish bank stock," Explorations in Economic History, Elsevier, vol. 42(3), pages 459-476, July.
    7. Joshua R. Hendrickson, 2014. "Contingent Liability, Capital Requirements, and Financial Reform," Cato Journal, Cato Journal, Cato Institute, vol. 34(1), pages 129-144, Winter.
    8. Grant Fleming & Frank Liu & David Merrett & Simon Ville, 2022. "Share ownership and the introduction of no liability legislation in nineteenth-century Australia," CEH Discussion Papers 11, Centre for Economic History, Research School of Economics, Australian National University.
    9. Richard S. Grossman & Masami Imai, 2011. "Contingent Capital and Bank Risk-Taking among British Banks before World War I," Wesleyan Economics Working Papers 2011-003, Wesleyan University, Department of Economics.
    10. Hansmann, Henry & Kraakman, Reinier, 2000. "Organizational law as asset partitioning," European Economic Review, Elsevier, vol. 44(4-6), pages 807-817, May.
    11. Mark I. Weinstein, 2003. "Share Price Changes and the Arrival of Limited Liability in California," The Journal of Legal Studies, University of Chicago Press, vol. 32(1), pages 1-25, January.
    12. Carl F. Fey & Daniel R. Denison, 1999. "Organizational Culture and Effectiveness: The case of Foreign Firms in Russia," William Davidson Institute Working Papers Series 252, William Davidson Institute at the University of Michigan.
    13. Bargeron, Leonce & Lehn, Kenneth, 2017. "Limited liability and share transferability: An analysis of California firms, 1920–1940," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 451-468.
    14. Acheson, Graeme G. & Turner, John D., 2008. "The death blow to unlimited liability in Victorian Britain: The City of Glasgow failure," Explorations in Economic History, Elsevier, vol. 45(3), pages 235-253, July.

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