Article ID: CBB372413306

Unlimiting Unlimited Liability: Legal Equality for Swedish Banks with Alternative Shareholder Liability Regimes, 1897–1903 (Summer 2021)

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This article examines the aftermath of the 1897 Riksbank Act in Swedish banking. The act placed banks with unlimited liability and those with limited liability on equal footing, removing the note-issuing privileges of the former. We consider whether changes in risk preferences occurred subsequent to the act, or whether extended liability was a sufficient deterrent. We conclude that when legal differences were removed, lower transaction costs for unlimited liability banks (ULBs) spurred aggressive competition, reflected in narrower interest spreads relative to limited liability banks (LLBs). ULBs also took on greater leverage and held less liquidity, which supports the Coasean interpretation that the shareholder liability regime mattered little. After 1897, ULB shareholders continued to receive higher dividends, enjoyed substantially superior returns on equity, and maintained an array of corporate governance controls to shield themselves against their additional risk.

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Authors & Contributors
Cool, Alison
Samuel P. Hanes
Fleming, Anne
Lomazoff., Eric
Hansen, Per H.
Liang, Jean Nellie
Concepts
Regulation
Law and legislation
Business history
Banks and banking
Technoscience; science and technology studies
Public policy
Time Periods
20th century
19th century
21st century
20th century, late
20th century, early
Places
United States
Sweden
Mississippi (U.S.)
New Zealand
Japan
Germany
Institutions
International Monetary Fund
United States. Environmental Protection Agency
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