Don’t Buy Shares without It: Limited Liability Comes to American Express

Abstract

What is the value of limited liability to the corporation? Financial economists take the value of limited liability for granted, and there has been little empirical study of its value. Few natural experiments allow us to estimate the value of limited liability. One of these, however, is the case of the American Express Company. It appears that American Express was the last publicly traded unlimited liability firm in the United States, becoming a corporation with limited liability only in 1965. In this article, I examine the effects of adopting limited liability on the value of American Express shares and on their risk. Consistent with economic theory and previous empirical research, I find little effect on the firm's value and a reduction in both systematic and unsystematic risk. This article also contributes to the empirical methodology of event studies.