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For Richer, for Poorer: Bankers' Liability and Bank Risk in New England, 1867 to 1880
Author(s) -
KOUDIJS PETER,
SALISBURY LAURA,
SRAN GURPAL
Publication year - 2021
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.13011
Subject(s) - liability , leverage (statistics) , limiting , limited liability , business , capital (architecture) , economics , actuarial science , law , finance , political science , history , engineering , mechanical engineering , archaeology , machine learning , computer science
We study whether banks are riskier if managers have less liability. We focus on New England between 1867 and 1880 and consider the introduction of marital property laws that limited liability for newly wedded bankers. We find that banks with managers who married after a law had higher leverage, delayed loss recognition, made more risky and fraudulent loans, and lost more capital and deposits in the Long Depression of 1873 to 1878. These effects were most pronounced for bankers with the largest reduction in liability. We find no evidence that limiting liability increased firm investment at the county level.