Weaknesses in banking systems are rooted in government credit-allocation preferences that prove unsupportable in private markets. Losses that preferential loans impose on lending banks and on the governmental safety net can be covered up for awhile, but not indefinitely. A silent run begins when...

Foreign direct investment offers a rich laboratory in which to study the broader economic effects of securities market mispricing. We outline and test two mispricing-based theories of FDI. The cheap assets' or fire-sale theory views FDI inflows as the purchase of undervalued host country assets,...

This paper provides a theory of foreign equity investment restrictions. In a setting where the demand function for domestic shares differs between domestic and foreign investors, domestic entrepreneurs can maximize firm value by discriminating between domestic and foreign investors. The...