Limited Liability and Investment: Evidence from Changes in Marital Property Laws in the U.S. South, 1840-1850

Limited Liability and Investment: Evidence from Changes in Marital Property Laws in the U.S. South, 1840-1850

By Peter A.E. Koudijs, Laura Salisbury
November 13,2018Working Paper No. 3753

R&R at Journal of Financial Economics

We study the impact of marital property legislation passed in the U.S. South in the 1840s on household investment. These laws protected the assets of newly married women from creditors in a world of virtually unlimited liability. We compare couples married after the passage of a law with couples from the same state who were married before. Consistent with a simple model of household borrowing that trades off agency costs against risk sharing, the effect on household asset holdings was heterogeneous: if most household property came from the husband (wife), the law led to an increase (decrease) in total assets.