We consider the problem of a risk-averse firm with limited liability.
The firm must select the size of its investment in a risky project. We
show that the optimal exposure to risk of the limited liability firm
is always larger than under full liability. Moreover, there exists a p
ositive lower bound on the value of the firm below which the firm will
''bet for resurrection''-that is, it will invest the largest positive
amount in the risky project. We also consider the standard portfolio
problem with more than one risky asset. We show that limited liability
may induce the firm to specialize in mean-variance inefficient assets
.