Does Limited Liability Matter?

In 1911, Nicholas Murray Butler (president of Columbia University and winner of the Nobel Peace Prize) wrote that the limited liability corporation is the greatest single discovery of modern times. It has since become one of the most common organizational structures, providing that, if a firm incurs losses and goes bankrupt, its shareholders can only lose the money they have invested in the firm. This sounds significant, but is limited liability really that important for firms? In a new paper, we address this question by using a unique Canadian setup. We use the enactment of limited liability legislation across … Read more