Chapter

Shareholder Liability, Risk Aversion, and Investment Returns in Nineteenth-Century British Banking

Graeme G. Acheson and John D. Turner

in Men, Women, and Money

Published in print April 2011 | ISBN: 9780199593767
Published online September 2011 | e-ISBN: 9780191728815 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780199593767.003.0009
Shareholder Liability, Risk Aversion, and Investment Returns in Nineteenth-Century British Banking

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In the nineteenth-century equity market, banks typically issued stock which extended shareholder liability beyond paid-up capital. The chapter finds that despite the potentially large downside risk associated with extended liability, bank stocks were popular with investors, particularly risk-averse individuals such as women, and seeks to explain this phenomenon. Three possibilities are examined. First, extended liability banks were de facto limited. Second, extensions of liability may have acted to constrain managerial risk-taking in banks so that in reality shareholders faced a small downside risk. Third, bank stocks earned a higher return than other stocks, which compensated investors for the significant downside risk they faced. The available evidence suggests that this third explanation may explain why risk-averse individuals made substantial investments in bank stock.

Keywords: risk; investment; shareholder liability; banking; limited liability; Britain; nineteenth century; risk; women

Chapter.  9158 words.  Illustrated.

Subjects: Business History

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