TY - JOUR
T1 - Minsky's financial instability hypothesis, information asymmetry and accounting information
T2 - The UK financial crises of 1866 and 1987
AU - Barnes, Paul
PY - 2007/2
Y1 - 2007/2
N2 - This article examines two major events in the economic and financial history of the UK in terms of the financial instability hypothesis (FIH), a theory of boom, bust and financial crises. The first involves the rise of limited liability in the 1860s and its subsequent disgrace. The second involves the economic boom of the 1980s, the stock market crash, and the subsequent recession. It is shown that, while the FIH is underpinned by a microeconomic model of the financial management of a business, it does not recognize the differences between the company's interests and those of its owners, the conflicts caused, the likelihood of informational asymmetry and its implications for accounting information. The article shows how in these two episodes the owners of companies may exploit their limited liability and informational asymmetry. Because the FIH does not consider these factors, it is incomplete both as an explanation and as a predictor of financial crises.
AB - This article examines two major events in the economic and financial history of the UK in terms of the financial instability hypothesis (FIH), a theory of boom, bust and financial crises. The first involves the rise of limited liability in the 1860s and its subsequent disgrace. The second involves the economic boom of the 1980s, the stock market crash, and the subsequent recession. It is shown that, while the FIH is underpinned by a microeconomic model of the financial management of a business, it does not recognize the differences between the company's interests and those of its owners, the conflicts caused, the likelihood of informational asymmetry and its implications for accounting information. The article shows how in these two episodes the owners of companies may exploit their limited liability and informational asymmetry. Because the FIH does not consider these factors, it is incomplete both as an explanation and as a predictor of financial crises.
KW - Crash
KW - Financial instability
KW - Fraud
KW - Informational asymmetry
KW - Limited liability
KW - Minsky
UR - http://www.scopus.com/inward/record.url?scp=78649469762&partnerID=8YFLogxK
U2 - 10.1177/1032373207072807
DO - 10.1177/1032373207072807
M3 - Article
AN - SCOPUS:78649469762
VL - 12
SP - 29
EP - 53
JO - Accounting History
JF - Accounting History
SN - 1032-3732
IS - 1
ER -