For Richer, for Poorer: Bankers' Liability and Bank Risk in New England, 1867 to 1880

Peter Koudijs; Laura Salisbury; Gurpal Sran

doi:10.1111/jofi.13011

For Richer, for Poorer: Bankers' Liability and Bank Risk in New England, 1867 to 1880

Peter Koudijs^*, Laura Salisbury, Gurpal Sran

^*Corresponding author for this work

Business Economics

Research output: Contribution to journal › Article › Academic › peer-review

12 Citations (Scopus)

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Abstract

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.

Original language	English
Pages (from-to)	1541-1599
Number of pages	59
Journal	Journal of Finance
Volume	76
Issue number	3
DOIs	https://doi.org/10.1111/jofi.13011
Publication status	Published - Jun 2021

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© 2021 The Authors. The Journal of Finance published by Wiley Periodicals LLC on behalf of American Finance Association

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For Richer, for Poorer Bankers' Liability and Bank Risk in New England, 1867 to 1880Final published version, 715 KBLicence: CC BY-NC-ND

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abstract = "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.",

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AB - 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.

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For Richer, for Poorer: Bankers' Liability and Bank Risk in New England, 1867 to 1880

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