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Unlimiting Unlimited Liability : Legal Equality for Swedish Banks with Alternative Shareholder Liability Regimes (1897-1903)

Kenny, Seán LU and Ögren, Anders LU (2021) In Business History Review 95(2). p.193-218
Abstract
This paper examines the aftermath of the 1897 Riksbank Act in Swedish banking. The Act placed banks with unlimited and limited liability upon 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 ULBs spurred aggressive competition reflected in narrower interest spreads relative to LLBs. ULBs also took on greater leverage and held less liquidity, which supports the Coasean interpretation that shareholder liability regime mattered little. After 1897, ULB shareholders continued to receive higher dividends,... (More)
This paper examines the aftermath of the 1897 Riksbank Act in Swedish banking. The Act placed banks with unlimited and limited liability upon 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 ULBs spurred aggressive competition reflected in narrower interest spreads relative to LLBs. ULBs also took on greater leverage and held less liquidity, which supports the Coasean interpretation that 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. (Less)
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author
and
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Extended shareholder liability, corporate governance, Sweden, note issuance, asset and liability management, Banking stability, Bank Regulation
in
Business History Review
volume
95
issue
2
pages
193 - 218
publisher
Cambridge University Press
external identifiers
  • scopus:85111411726
ISSN
0007-6805
DOI
10.1017/S0007680521000192
language
English
LU publication?
yes
id
ce6770c4-7776-4248-8d0d-303127dff031
date added to LUP
2021-04-19 10:23:00
date last changed
2022-04-27 01:36:05
@article{ce6770c4-7776-4248-8d0d-303127dff031,
  abstract     = {{This paper examines the aftermath of the 1897 Riksbank Act in Swedish banking. The Act placed banks with unlimited and limited liability upon 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 ULBs spurred aggressive competition reflected in narrower interest spreads relative to LLBs. ULBs also took on greater leverage and held less liquidity, which supports the Coasean interpretation that 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.}},
  author       = {{Kenny, Seán and Ögren, Anders}},
  issn         = {{0007-6805}},
  keywords     = {{Extended shareholder liability; corporate governance; Sweden; note issuance; asset and liability management; Banking stability; Bank Regulation}},
  language     = {{eng}},
  month        = {{03}},
  number       = {{2}},
  pages        = {{193--218}},
  publisher    = {{Cambridge University Press}},
  series       = {{Business History Review}},
  title        = {{Unlimiting Unlimited Liability : Legal Equality for Swedish Banks with Alternative Shareholder Liability Regimes (1897-1903)}},
  url          = {{http://dx.doi.org/10.1017/S0007680521000192}},
  doi          = {{10.1017/S0007680521000192}},
  volume       = {{95}},
  year         = {{2021}},
}